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Attorney Bradley Bailyn Explains Commercial Contracts & Litigation
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A Customer Isn't Paying, Should I Use A Collection Agency Or An Attorney?
Practical insights from powerhouse attorney, author and speaker Bradley Bailyn.
Sometimes you get a deadbeat customer, a business debtor who just won’t pay a bill voluntarily. In those cases you have to provide the customer with the proper “motivation” to pay up, and that often means making the decision between using a collection agency, or a collection attorney.
So how do you make that decision?
Debt collection agencies are in reality “toothless tigers,” they can’t do much, other than repeatedly contact a debtor to try to get them to pay up—for a percentage of the amount collected of course. (Some collection agencies will work on a fixed fee per debtor, regardless of their success on collection).
Now, many people aren’t aware of the fact, but the federal FDCPA, the Fair Debt Collection Practices Act, does not apply to business debtors, so the non-paying customer just can’t stop the collection activities with a letter to cease, like he could if it were not a business debt.
But so what? Can a collection agency represent itself as an attorney? No. Can a collection agency bring a lawsuit to collect a debt and use various accelerated judgment procedures to more quickly collect a debt? Other than in commercial small claims court under certain circumstances, no. Can they commence enforcement activities on a judgment after it’s rendered? No.
Experienced customer deadbeats aren’t ignorant of the above facts, and are rarely intimidated by a collection agency. Often their response to a phone call from an agency is either a “click” or something somewhat more “colorful.” Collection letters get shredded. Often, the debtor response is not “I’ll send payment right away.”
A call or letter from a collection agency is at best, an annoyance to the experienced deadbeat customer. On the other hand, a letter from an attorney will get more attention, and a lawsuit initiated by an attorney will force them to pay attention, or risk getting a default judgment against them.
Are there times to use a collection agency?
Yes, when your customer debt that is not being paid is too small for an attorney to handle practicably. Some collection agencies have minimum “floors” to debts they will handle, in other words, a minimum amount due. Sometimes they will take any debt for collection regardless of the amount due, but often if they are taking small debts, they will want a certain number of them.
It all depends on the agency’s policy.
There’s no one answer to the question, but there are some guidelines. If the debt is $5,000.00 or less, you, as a business creditor can use the commercial small claims court to initiate a lawsuit on your own, even if you are a corporation of LLC. (This is not the case in other courts, where an LLC or corporation must be represented by an attorney). However, you are limited to filing five cases per month statewide. (Not good if you have more than that number of customers who currently are not paying).
If the amount is small, the collection agency may be the only route available to you, as an attorney, especially if working solely on a contingency fee, has to be able to have a chance at earning reasonable compensation for the time involved, just as you do in your business when performing work, labor and services.
However, if you have a regular business attorney that you are giving a sufficient amount of business to on a regular basis, he or she may, (emphasis on “may,”) as a courtesy, sue on a small amount due from a customer.
So what’s your first move?
Well, since an attorney is a lot more effective at collections than a collection agency, call an experienced collection attorney and flat out ask him if he will take the case. Tell him the amount due, the age of the debt, and whether or not there have been any responses, positive or negative, from the non-paying customer. Most of all, tell the attorney the truth at the beginning.
The worst that can happen is the attorney will pass on the matter, and suggest you use a collection agency. If he decides to represent you, he may do it on a pure contingency, (depending upon the amount of the debt and how solvent and asset rich the debtor is), he may take it on an hourly basis, or he may take it on what is referred to as a “blended” rate, where you pay a certain amount down, and the remainder is a reduced contingency fee.
When you “go to war” against a deadbeat customer, you want to have the big guns on your side if at all possible. So your first call should be to an experienced collection attorney to see if your case is suitable for legal representation. It might make all the difference in your getting paid.
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Bradley R. Bailyn, Esq. , Founder
Bradley R. Bailyn, Esq., is a New York City-based attorney, author and speaker with practice area expertise in commercial real estate and bankruptcy law. Prior to founding The Bailyn Law Firm, Mr. Bailyn served as in-house counsel for multiple companies, where he advised on all legal aspects of major business and financial transactions including private equity, spin-offs, real estate, and restructuring transactions, for more than thirteen years.
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