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Debt is something that almost every business and professional institution faces at some point. However, the question is: Should you outsource your debt collection to a law firm?
Many businesses handle their own debt collections, which often has grave consequences for the business in the form of unpaid debts and mishandled collections attempts. Outsourcing to professionals avoids these issues. To start, you need to determine the collection firm's methodologies and how it manages receivables. Next, look at how it examines overdue accounts and collects on different types of debts, since not all debts are created equal.
Benefits of Hiring a Law Firm to Handle Collections
One benefit of hiring a collection law firm is that many of these firms take debts on a contingency basis. In other words, the law firm does not earn any fee until all debts are collected. This makes law firms look for faster ways of collecting debts.
Debt collectors have ways and means that allow them to operate through the courts, as well as an understanding of the law to help you collect your debt faster. Most of these means are not available to other businesses, which is why many fall into unauthorized ways of settling their debt matters.
Points to Note before Hiring Law Firm Debt Collection Agency
- 1.The size of the balance: Essentially, collection law firms do not work on debts that are less than $1,000. This is because the cost of recovering them may be more than the debt itself, making them unfeasible. Hence, analyzing the costs and profits with the help of an attorney is better than wasting more money than can be retrieved.
- 2.Collection methods: Collection law firms have different methods, rated on a severity scale, and they work step-by-step through the method they think will work best. Attorneys do more than just make phone calls. They may file lawsuits, obtain judgments, and/or reduce judgments to cash to help you collect the revenues owed to you.
- 3.Fees: Hiring a law firm to collect your debts comes with a fee, of course. You need to consider your own budget before agreeing to these services. There are different services that these law firms offer, based on a variety of criteria, including your unique case and how fast you want to retrieve your debt. Look carefully at quotes to find a firm whose price is in line with your budget and, naturally, exceeds the value of the debt itself.
Sample Prices to Hire a Collection Law Firm
Prices on hiring an attorney to handle debt collection vary dramatically, by location, amount of debt owed, industry, and more. Attorney's fees themselves vary dramatically by location, so this is to be expected.
That said, you should expect to pay between 25 and 50 percent of the amount collected in fees. There may also be charges based on the age of the account (older accounts are less likely to be collected on).
- Some attorneys charge an hourly fee, ranging between $150 and $300 per hour, to negotiate with debtors
- Some attorneys charge a flat rate per debtor or per debt, ranging between $500 and $5,000, depending on the total debt amount
- Lawyers who charge on a commission basis charge an average of 10 percent of the debt amount collected
- For debts older than two years, commission percentage is higher, typically between 20 and 25 percent of the original debt amount
- Debts older than three years may have an even higher percentage, typically between 30 and 35 percent of the original debt amount