Collection Agencies And Other 3rd Party Options 4 of 6

By Dean Kaplan+

 

If collection agencies aren't successful, lawyers may be needed

If a collection agency is unable to collect a debt for your company, they may suggest retaining an attorney to pursue the matter in court

Collection agencies and debt collection attorneys have their own unique terms and jargon. Once a credit department hires a collection agency or an attorney, it is important for everyone to understand the terms and principles being used. This is the fourth article in a six part series about third party options available to credit departments. This article will focus on defining the terms and principles used by agencies and debt collection attorneys.

Agencies are specialists in collecting or settling claims alleged by one individual or company against another. Two kinds of claims exist: commercial claims and retail claims. A commercial claim is a business-to-business obligation which has resulted from goods sold or leased, services provided, or monies loaned to a business for commercial use. A retail claim is a consumer obligation incurred for personal use.

While many commercial claims relate to unpaid invoices, this is not always the case. Sometimes commercial claims can relate to lease or security agreements or other business transactions. Because of the variety of circumstances which can result in commercial claims, the agency must be versatile and informed on the legalities related to each specific type of claim.

A forwarder is the creditor’s agent who turns claims over to debt collection attorneys. Attorneys, commercial collection agencies or credit insurance companies can be forwarders for a company. The attorney to whom the claim is given is the receiver.

Forwarders typically turn claims over to an attorney because the forwarder has been unable to collect payment and the debtor is located far enough away from the forwarder to make it impossible to pursue legal action at the local level. Once the forwarder turns the claim over to the attorney, the creditor becomes the client of the attorney and any further correspondence between the attorney and the creditor goes through the forwarder.

The fees charged for collection services are unique to each individual agency as are the fee structures. Below are some common examples of collection agency and attorney fee structures:

• A commission is paid by the creditor to the forwarder upon successful collection of the outstanding commercial claim. The commission is usually contingent upon the successful collection, and is usually a percentage of the total amount collected.

• A retainer is an upfront payment of a specific dollar amount to retain the services of an attorney. The retainer is included in the total fee ultimately charged for the services provided and the collection results attained.

• A suit fee is paid to the attorney for legal services provided by the receiver on your behalf to persecute a commercial claim. The suit fee is applied to the litigation costs including any proceedings occurring after the judgment. If a counterclaim is filed, the fees for this are considered separate and typically require a separate fee arrangement.

• Court costs include costs associated with the filing and process and witness fees. The creditor should always approve out-of-pocket costs before they occur. Typically the attorney absorbs normal operating office costs such as telephone calls, photocopying, postage, and skip-tracing efforts.

Once a credit department determines that it cannot collect an outstanding debt, there are other third party options besides hiring a collection agency or debt collection attorney. Mediation and arbitration are two such alternatives. The final two articles in this six part series will focus on these options.

Click here to go on to the fifth article in the series Collection Agencies And Other 3rd Party Options 5 of 6. Click here if you missed previous articles in the series Collection Agencies And Other 3rd Party Options: In Court.

The Kaplan Group is a boutique collection agency specializing in large (over $10,000) debt collections due from businesses. Founded in 1991, the company has a stellar reputation (A+ rating with the Better Business Bureau) and is recognized as one of the leading collection agencies for results on large and complex matters.