When should our law firm’s client accounts be sent to a collections agency?

CosmoLex Team

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Client Accounts

When clients repeatedly fail to address an outstanding invoice, you have to evaluate all your options for collecting the debt. First, you’ll want to be familiar with the laws and ethics rules in your jurisdiction. You want to have the client settle their account, not run afoul of the law yourself.

The scope of some state laws on debt collection extends to anyone who is owed a debt, not limited to third-party debt collectors[1]. This contrasts with the Fair Debt Collection Practices Act, which applies to debt collection agencies alone.

If on-on-one negotiation with your clients fails to resolve account issues, there are formal routes you can take to get the job done. Collection agencies are, of course, top-of-mind for this. However, they offer different services that you can use. One option is to have them write a letter on your behalf. Although attorneys are professionals at drafting letters, collection agencies specialize in writing letters to get overdue money[2].

Consider enlisting an agency to draft the letter before submitting the client’s account for collection. Collection agencies often charge up to 50 percent of the collection amount.

Other formal options for getting payment include:

  • Small claims court
  • Superior Court Arbitration
  • Write off debts

Remember that the best way to prevent sending client accounts to collection agencies is to clearly articulate fee and representation structures when you sign on new clients. If you provide services over an extended period, sending periodic invoices mitigates the non-payment of large bills.

It can also be helpful to reach out to your client and advise them that a debt collection agency is the next step in the payment process unless funds are received by a particular date. This can oftentimes trigger a response and payment.


References

1. Collecting Debt from Your Law Firm Clients
2. Deciding Between a Debt Collection Agency and a Collection Law Firm