Should I use a debt collector or lawyer?

Our dedicated page on the collection of debts provides relevant information on the best processes and procedures to adopt in the effective debt collection.

A question we often get asked is if a person should just use a debt collector to collect a debt and not bother using a lawyer.

What’s the Difference?

A debt collector is licensed to collect debts on behalf of a business. They can demand repayment of debts in writing, by phone and face-to-face (if appropriately licensed). There are no qualification requirements nor training required, a person must simply meet the licensing criteria.  Have a look at the Queensland Governments information of the licence for more information.

Their process is generally to write a simple letter demanding payment, then follow up on the phone, or in person and attempt to convince the debtor to pay up.  If it works, the debt collector is paid a commission on the sum recovered.  We understand common percentages for ‘commission’ range from 25% for small debts to 5% for amounts over $20,000.  You’ll usually be contractually required to pay that commission if that debt is ever paid in the future, regardless of who causes the debtor to pay.

For example, if a debt collector sends a simple debt collection letter out for you for $20,000 and the debtors pays, you’ll give $1,000 of that to the debt collector as their commission.

If the debtor does not pay, then the debt collector refers it to a lawyer on their own panel of lawyers and they, usually, send another demand and then prepare the legal claim for you.  You are then charged their legal fees and the commission payable to the debt collector on top of that, when the debt is paid.

The common myth we hear are that a debt collector will “beat down the debtors door and get my money” or something along those lines.  The reality is that debt collectors must adhere to strict compliance with codes of conduct and the Australian Consumer Law.  They must not use physical force, coercion, harass, mislead, deceive or take unfair advantage of any vulnerability affecting the debtor.  Check out the ACCC’s information on debt collectors for more information.

In any event, it surely doesn’t make any business sense to risk having a debt collector engage in such conduct with a customer or client of yours, even if they owe you money. The reality is, a debt collector will be courteous and professional in handling your debtors.

By contrast, a lawyer is highly qualified, trained and licensed to provide legal services that include making demands for the payment of debts.  Most debt disputes handled by lawyers usually involve sending out an initial letter of demand and either collecting the money owed or negotiating a resolution by payment arrangement by phone or in writing.

Lawyers are prohibited from charging ‘commissions’ for work they do and can only charge you a fair and reasonable cost for carrying out the work.  To be frank, recovering debts for a business is a straightforward and simple legal process.  The amount of time required by a lawyer to issue a letter of demand is minimal and does not increase because the amount demanded is more (it’s merely the number on the page!).

A simple letter of demand by a lawyer will cost you anywhere between $50 to $350.  If a lawyer is charging you more than $350 for a letter of demand for a tax invoice debt then, in our view, that is not providing you with good value for your money.

Taking the above example, that $20,000 debt that is paid after the first letter of demand will now have saved you anywhere between $950 and $650 in recovery costs.  If you have multiple debts you are chasing then the savings in recovery costs can be significant.

The real advantage of using a lawyer to issue your demands is that the demand is taken more seriously and the threat of legal action is taken more seriously and is real.

For a good lawyer (especially one who focuses on debt recovery) commencing legal proceedings to recover a debt is straightforward and can be done quickly and efficiently.  The more you use that same lawyer to recover debts, the more efficient they will become.

The Choice is Yours!

Each business is different and the process you might wish to adopt to recover debts is a decision unique for your business, its needs and your preferences.  Our advice is simple, you are in business and need to make a commercial decision on how to go about chasing your debtor.

Feel free to call us or make an appointment to talk frankly about debt recovery or debt collection and find out why you might want to choose us.

DISCLAIMER: The above article was written at a specific point in time in the past and is provided as general guidance only. It is not intended to be specific legal advice to any person’s particular circumstances who may be reading it. We do not recommend you use this article as a replacement for obtaining proper legal advice on your issue and encourage anyone reading the article to obtain legal advice to ensure the above information and guidance remains valid and suits your particular circumstance. In our experience, there is no ‘one size fits all’ to legal problems!