to Call Your Collection Lawyer
At this point in the process, you've set up your system for
keeping track of your accounts and you know pretty much when
you're going to begin making efforts to collect past due
accounts. The next question is, who is going to collect
the accounts? In other words, are you going to do it yourself?
Will you use a collection agency? Will you use a lawyer?
[If you're not familiar with using collection agencies or
lawyers, you may want to see our section on how
lawyers and debt collectors get paid before continuing with
Generally, doing the collecting yourself is the least
expensive of the three choices, while having a lawyer do it is
the most expensive. But when figuring out the cost, don't forget
to consider the value of your time to the business. If you do it
yourself, and it ends up taking up so much of your time that
your business suffers as a result, then doing it yourself will
actually be the most expensive approach. Also, while doing it
yourself is usually the least expensive approach, it's also
usually the least effective approach. Hiring a lawyer to
do it is usually both the most expensive and the most effective
A good way to tackle the problem is to decide ahead of time
how past-due accounts will be handled. One approach is to base
your decision on the amount of the past-due account.
For example, your system could be set up as
All past-due accounts under $25 get written
off (for more on how that works, see accounting
for bad debts).
All past-due accounts between $25 and $500
are collected by you.
All past-due accounts between $500 and $1,000
are turned over to a collection agency.
All past-due accounts over $1,000 are turned
over to your lawyer.
The levels you choose may vary, depending upon the type of
business you're in and the size of your typical transaction.
This approach, however, creates at least two potential problems.
First, what do you do with smaller accounts that you can't
collect? If you're unable to collect one of the $50-$500
past-due accounts, do you at some point turn over the account to
Second, suppose your lawyer's fee is a third of what he or
she collects. Suppose you turn over a $3,000 past-due account
that your lawyer is able to collect with one phone call because
your customer misplaced the bill. If you automatically turn over
all accounts above $1,000 to your lawyer, are you possibly
throwing money away? Also, are you alienating your larger
customers by having a lawyer contact them right after the bill
One possible alternative is to set up a system based on time
rather than on amount.
As a second example, your system could be set
up as follows:
Past-due accounts no more than 90 days old
are collected by you.
Past-due accounts more than 90 days old but
no more than one year old are turned over to a
Past-due accounts more than one year old are
turned over to an attorney.
While this approach solves some of the problems created by
the first approach, it also raises new problems. First, it
commits you to spending at least some of your time on all of
your accounts, which could be enormously time-consuming if you
typically have a lot of past-due accounts. Second, the
transition of the accounts from the collection agency to the
attorney after one year can be troublesome. If the attorney is
able to collect the debt, is the collection agency entitled to
anything for its nine months of work?
Perhaps the best approach would be to combine the two.
As a third example, your system could be set
up as follows:
All debts will be collected by you for 30
days after they're past due.
After 30 days, all past-due accounts greater
than $1,000 will be turned over to your lawyer.
You will continue to collect all other debts.
After 60 days, all past-due accounts of
between $500 and $1,000 will be turned over to a
collection agency or to a lawyer.
After 90 days, all past-due accounts under
$500 will be turned over to a collection agency.
This approach, as you can imagine, could be difficult to keep
track of. If you believe it would be too difficult to track, you
should go back to one of the previous approaches. In any event,
if you decide to collect any of the past-due accounts yourself
in whichever approach you choose, you should check out streamlining
your tactics for suggestions on how to improve your