Debt Collection Services - The Options

Debt collection is one of those things businesses wish they didn’t have to deal with but ultimately is a crucial step in getting paid on some occasions.

Businesses that extend credit, run the risk of the customer not paying on time or at all.

If that happens, there are three main debt collection options. Below we identify the pros and cons of each in turn:

DIY Debt Recovery – In House Debt Collection

Over a million money claims are started at court each year. The vast majority of those claims are started by the business or person itself, rather than through a solicitor. Many businesses like yours are already using the courts themselves to recover payment of invoices.

Many people think you need to have a solicitor to go to court but that is not the case at all. Many businesses dispense with the need for a debt collection agency or solicitor, to deal with it themselves.

It makes sense as why pay someone over and over again, to do something that is fairly quick and simple to do yourself? Like DIY at home, you just need the right tools and to be shown what to do.

Many people assume starting a claim is difficult or stressful but it really isn’t. Once you know how to do it, you can repeat it over and over again if necessary.

The benefit of carrying out the work yourself, is that you can avoid the cost of instructing a solicitor or debt collector. You keep control and dictate the pace you proceed at, rather than being one of many clients a debt collector or solicitor might be juggling at any one time.

Even if you start a claim and it becomes disputed, you still have the option to involve a solicitor or direct access barrister, if you want assistance later on.

Debt Collection Solicitors

Hands up. Who likes paying hefty legal bills? We thought not!

Debt collection solicitors very often work on a fixed fee basis to chase unpaid invoices, with fixed fees for the different stages of the process. Those fees add up.

Most businesses who approach a firm of solicitors, expect that a solicitor will be carrying out the work but that is unlikely to be the case for debt recovery work. If you are thinking of using a firm of solicitors for any form of work, whether debt recovery, conveyancing, etc, it is always best to ask who will actually be carrying out the work and what experience they have.

Given that debt recovery is high volume and low complexity work, it is often the most junior lawyers that carry out this work. It is in our experience, unlikely that a solicitor will carry out debt recovery work for clients. It is often paralegals, trainee solicitors or legal executives that carry out the work, as typically they get paid a lot less than qualified solicitors. If not solicitors, those carrying out the work will need to be under the supervision of a solicitor in the practice, albeit you will not know how much supervision, if any, is given.

A benefit of using a firm of solicitors is that they should know what they are doing, are regulated by the SRA and ought to have a minimum level of professional indemnity insurance. To try to keep the work viable it is often junior fees earners carrying out the work, often with a vast number of claims to manage at any time and with client contact kept to the bare minimum. The most modern firms of solicitors may have automated document creation or portals for you to log in and view progress or to make contact. Many however, do not have such systems.

Debt recovery is not generally a profitable area of law. It is usually provided as a way to attract new clients to a firm, to help existing clients with a problem and to make money on claims that become disputed.

Solicitors, due to overheads like insurance, premises and staff, can prove to be more expensive over the long term, as you will pay the fees each time you send an instruction through, usually on the basis that you pay them regardless of whether there is any success or recovery.

Debt Collection Agencies

Debt collection or debt recovery agencies, use persistence to get invoices paid. There is often a confusion that debt collection agencies are bailiffs or have similar power. They are not.

Debt collection agencies have no power to force anyone to pay. It is only officers of the court (a County Court Bailiff or High Court Sheriff) that can take money or assets away once a CCJ has been obtained.

Debt collection agencies have no teeth and any business debtor that knows they have no powers to enforce, will ignore the demands for payment and their attempts will be ineffective. They are all bark and no bite.

However, receiving a letter or call from a debt collector can get the debtor to engage as they realise you have escalated things and are not yet prepared to walk away from pursuing the debt.

Debt collection agencies typically charge a commission on any sums recovered and some operate on a no recovery – no fee basis.

Very quickly, debt collection agencies will abandon attempts to chase difficult debtors. They want easy quick wins to earn their commission.

Financing Options

There are also potential financing options to help with cash flow issues.

Factoring companies might be prepared to advance money on unpaid invoices for a fee and likely on condition the advance needs to be repaid if the debtor does not pay.

Lenders might be prepared to lend or extend credit (ie an overdraft) but will likely seek security and / personal guarantees for sums advanced.

You should seek professional advice upon the options.