If you’re a small business, chances are that you are going to – at some point – need help collecting on money you’re owed. There are a few different routes you can pursue to get your money. You can go through a collections agency, you can do it yourself, and you can hire an attorney to help.
Collections Agencies are great options. They know how to get folks to pay and they know what not to do to avoid running afoul of Consumer Protection laws, such as the Federal Fair Debt Collection Practices Act. The downside is that they, generally, take a large chunk of the amount collected as their fee. For example, I recently saw one company that charged 40% for anything under $1000, and 30% for anything over $1000. That seems like a lot if you’re a small business and want your money. But they’re a good option to hold on to if you’re worried about doing something wrong in the collections process.
You can do it yourself if you want. You’re owed the money, you’re allowed to try and collect it. And, because the money is owed to you, a lot of the laws around debt collection don’t strictly apply to you. But, and here’s the downside on this, it takes time. I know of someone who has their call list by their phone and, each day, they call each of these 10 or so people to try and collect. This, obviously, can break the frustration threshold pretty quickly. Follow up invoices, demand letters, and Small Claims Court (for debts <$5,000) or District/Superior Court (for debts >$5,000) are additional steps to be prepared for. Generally, I recommend to clients that, if they’re trying to collect on the debt themselves, Small Claims Court is an easy step to do yourself, but if you have to step up to District or Superior Court, you probably need to retain an attorney.
Using an attorney to collect on debts is very similar to doing it yourself, except they do it for you – as you might expect. Generally, you will spend more money on an attorney than doing it yourself. However, attorneys often give you a broader range of options and can counsel better on when to settle, when to write it off, or when to pursue. Additionally, though fee agreements vary widely, an attorney charges for their time, not necessarily a flat percentage of the recovery. So, “easy” collections when an attorney is needed, can be a better deal for the business owner. Also, cases which are very difficult to collect on make financial sense to use an attorney.
No matter how you try to collect on debts owed to you or your business, do your research. There is a lot of information available online on what to do or not do. Understand the do’s and don’ts and, especially, make sure that you’re following the Federal and State requirements, regulations, and laws.