What's better, a collection agency or a lawyer?

Question

I have a small consulting business and one of my clients is not paying their invoices to the tune of 30K. There is no dispute over the work at all and I have spoken with them. After many unfulfilled promises, and a refusal to come out and tell me the truth of what's going on, I have to take further action.

Which is a better course of action? A lawyer to send a letter of intent to sue, or a collections agency?

Answer 1

Oh! This sounds so familiar in the independent contractor consulting world.

I would suggest going through a collection agency because of the way they operate. A CA would try to recover the money on your behalf but you pay them only when they recover money. They usually would deduct a pre negotiated agreed upon % from the recovery.

A lawyer would probably charge you no matter whether the money is recovered or not. A lawyer would also need all sorts of proof of your work there. Would you be able to produce them.

In future keep a few things in mind. Always have a written contract of the work you are doing at a clients place. Have all the financials in there too. Better still have part payments at various stages of the project so that it does not accumulate to a big sum. You can always stop work if the payments are not made in time. Then the only risk would be the last payment.

Good Luck!

Answer 2

I would think a collection service would be more affordable. People usually pay no more attention to a lawyer than anything else. And the lawyer will cost you a lot more. You can file a suit on your own against them for the money, and ask that they be responsible for the court fees and all that. But, if they file bankrupt and you have already spent money to collet, you may never see it. I would consider selling the Receivable to an agency. There are agencies that will buy hard to collect receivables from you and then try to collect it themselves. They are more experianced and have the tools to best handle it. Mind you, they may only pay you about 60% of the value, because they have to make a profit too. But how much would it cost you to pursue it on your own? Then, if you don't collect, the only option you have is to write it off to bad debt and use that loss for a small tax credit.

Answer 3

You might be able to go through a magistrate court for a portion of the amount also and try to seek some of the money back. I did that while serving on a condo board, but that was only a few thousand dollars. You can check with your local city government and find out what the limit is there. Basically you just file your information as to why you are doing this, a court date will be scheduled where you both appear, and as long as you have evidence to back up your claim, you should win (unless they have a doozy of an answer). I've noticed a lot of the defendants do not show up though and in that case, you are automatically awarded the judgment. Good luck!

Answer 4

It really depends on how long your client has failed to pay. Typically one would start collection preceedings after 90 days.
A letter from your lawyer really does not hold any more weight than a letter from your office. Legally the collections process is a better route. There are two basic ways of accomplishing this. Sue or subcontract with a collections agency.

Answer 5

Why don't you call the owner directly and simply ask what you can do to work it out? Suggest a payment plan. If you get the collection agency involved, they will take a big chunk of the money.

Answer 6

Depends, if they have assets that can be liened get a laywer and slap a lien on them. No quarantee you'll get the money but, that client will be unable to do any conventional financing in the future without paying you.

You might be able to do it without a lawyer, and let's face it nobody likes lawyers, but one might be useful here.