Contingent Fees and Other Fee-Related Issues Regarding Debt Collection

Contingent Fees and Other Fee-Related Issues Regarding Debt Collection

Contingent Fees and Other Fee-Related Issues Regarding Debt Collection
Have you heard of “contingency collection,” and are you familiar with the process? Considering the use of debt collection attorney services but don’t know where to start? Here, we’re going to talk about contingent fees and other fee-related issues with regard to debt collection, so if you represent a business looking for help collecting debts, this is the blog for you.

First, let’s talk about what the difference is between contingency collection and other collection types; contingency debt collection refers to a collection entity that collects a debt for a client wherein the fees are based on an agreed-upon percentage of the amount collected. In a nutshell, a client is only going to pay the collection agency if the debt is collected.

In so doing, this not only clears the client of payment should no debt be collected, but it also motivates the collection company to obtain that debt. Meanwhile, a set fee percentage is normally determined beforehand and is typically based on the amount of debt being collected (or on the age of the debt).

The bottom line here is that if no money gets collected, no money gets paid to the collector.

The Benefits of Using a Debt Collection Attorney
Using a contingency collection law firm makes sense if you are looking to get paid for your services and are dealing with a debt that is more than 120 days past due. Such firms will go after your defaulting customer with calls, letters, negotiation and, of course, legal action when it comes down to that; from our experience, a combination of these tactics are often used, and because the firm only gets paid when you do, these attorneys want that money just as much as you do – and will work hard to obtain it.

The ABCs of Contingent Fees
There are a staggering amount of variables to consider during the process of choosing a debt collection attorney to handle your company’s delinquent accounts; indeed, as much as you may value important factors such as experience and location, the two major elements for any business owner are contingency fees and collection rates.

Unfortunately, it’s not that simple, as those two factors have a tendency to work in opposite directions – making finding the law firm that boasts the right combination for your particular business easier said than done. In order to help you get a better grasp on what to look for, let’s dive in and take a closer look at each side of the coin.

Collection Rate
This is how the track record of success that a debt collection law firm has had is determined, and it can be quickly calculated by dividing the number of successful collection efforts by the number of attempted collections. It is vital, when evaluating a firm’s collection rate, to consider the context: A firm attempting a formidable amount of challenging collections will naturally bring in a lower collection rate than an organization that cherry picks only the best opportunities. In those cases, the first company might boast a lower collection rate despite yielding more impressive results on a per-case basis.

Contingency Fees
This is the common structure that debt collection attorneys use to bill their clients; as we have been alluding to, the firm and the client agree up front that the firm will keep a certain percentage of the amount collected. And, as we touched on with regard to collection rates, contingency fees can often represent somewhat misleading numbers.

That’s why choosing an attorney simply because they offer the lowest contingency fees is often viewed as a mistake, because the percentage that’s agreed upon to be paid will be inconsequential if an outstanding debt isn’t collected on.

Is There Any Middle Ground?
We understand that much of this can be confusing, but what’s important to take away from this information is that both collection rates and contingency fees should be considered, along with a number of other factors, when making a decision regarding hiring a collection law firm. In many cases, in fact, the best firm for your business may lie somewhere in the middle of the range of possibilities in terms of both contingency fees and collection rate.

You must make sure they’re not taking advantage of your on either number, but you also shouldn’t expect unrealistic numbers if you’re looking to produce results.

How Much Will Debt Collection Fees Cost Your Business?
Here’s something to keep in mind: Even companies with skyrocketing sales have to stay on top of their accounts receivables and find a way to reclaim the lost revenue when customers don’t pay. Some business owners just write off their bad debt in the hope of receiving favorable tax treatment, but this is a major no-no since most small businesses run on a cash accounting basis – and there’s no tax benefit for a bad debt write-off.

Price is just one of the things you should look at when hiring a Massachusetts debt collection attorney, with the overall goal being to recover as much money as you can at the lowest cost to you.