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Should you use a Legal Partner or a Debt Collection Agency for debts?

April 7, 2016
Debt Collection

It’s a given that both Legal Partners and Debt Collection Agencies have an essential role in collecting unpaid debts and invoices for both business and consumer debts, particularly given the considerable dialogue at the moment regarding the struggle some SME’s are having just trying to get their invoices paid within a reasonable timeframe. 

It is speculated that some are a genuine risk of going under as they are not in a position to defer re-payment over a long period of time as say a large Utility or Telecoms Company might be. Factor in strengthened regulation via the Financial Conduct Authority, the coming Pre- Action Protocols and the change in priority from cash results to customer outcome, then it’s crystal clear debt collection is no longer as simplistic as it once was. 

Creditors must have multiple strategies, cater for a variety of different outcomes and be able to demonstrate that these are actually being practiced. Debt collection has a whole new set of metrics which, although time and resource hungry, have been extremely revelatory. So what collections route is best? Having worked both sides of the tracks, there are clear differences in process and results. The last couple of years have created goliath DCA’s as smaller agencies have been snapped up Pac Man style. 

DCA’s are invariably slick well oiled machines, they process in bulk, sorting debts into in-numerable categories and funnelling them down a variety of cycles at impressive speed. They utilise technology like moody teenagers do, to the exclusion of all else. They will get quick results and they will be FCA compliant in every area that matters. Some will even have an in-house law firm to take the next steps giving weight to their earlier activity, but many don’t which means that your debt is pushed through a series of square or round holes depending on which scorecard or algorithm it chimes with and what pops out the other side comes back to you as ‘uncollectable’ several weeks or months later.

 It likely cost you nothing to send out and receive back, so all you’ve lost is time. But time is an issue in debt collection as those SME’s are finding out, you should be going through your internal Credit Control as soon as the debt becomes overdue and outsourcing at 90 days at the latest. The clarification of FCA registration for Law Firms by the Solicitors Regulation Authority and the number of us that have applied, shows the positive change’s Law Firms have made to undertake a pro-active, outcome focussed collections routine but still be able to issue proceedings where a customer is clearly identified as appropriate for such action in a timely manner. Sadly many creditors avoid using a Law Firm either through misplaced fear of reputational loss or because they are under the misapprehension that the process is cost prohibitive…it’s not, trust me! An FCA and SRA regulated Law Firm can provide a wholly more rounded service and will likely be competitively priced, services on offer can be:

  • A Law Firm branded demand letter, which as it is, is a clear precursor to potential legal action and will actually state that legal action is possible, as we all know you can’t say it if you don’t do it! The escalation and rebrand often promotes a silent customer to respond.
  • A law Firm can be more hands-on, conducting a thorough case by case investigation of your customer’s circumstances and will attempt to avoid legal action to reach an amicable solution where possible. 
  • A faster solution to your cash flow problems. Bad payers have a domino effect on cash flow which can affect the way a company trades. A Law Firm will not wait weeks or months to report back to you but will act quickly to establish contact, a payment plan or take action. If a judgment is obtained and providing payment is made you will recover anywhere between 75% & 100% of your costs. 
  • You get a lot of knowledge for your fee. If legal action is appropriate a Law Firm with a specialised Debt Recovery team will have Paralegal’s and Solicitors vastly experienced at dealing with the few exceptions to the process and can address any defence made swiftly. In the vast majority of cases Judgment is entered with no response from the debtor or by admission, you can expect to be advised as to an appropriate method of enforcement already identified and potential costs to allow you to make an informed decision that’s best for your business. 
  • Personal Service.  If proceedings are commenced a Law Firm will assign your debt to a named contact, someone who is accountable to the Courts and accountable to you the Client. This means you can get updates and ask questions on demand.

If you are serious about recovering your unpaid debts then you must have a robust Credit Control function but have a clear cut off point to outsource to a specialist and in my wholly biased opinion you can’t go wrong with a Law Firm! 

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