If you own a business and have a contract with another business to provide goods or services (B2B) and they default or breach, you may wonder whether you should hire an attorney or a collections agency. The answer is a question: what is the amount due?
You see collection agencies typically deal in 50/50 splits of what they recover. For example, if the breaching party owes your company $50,000.00 and the collection agency recovers all of it, you would receive $25,000.00 back. Not a bad paycheck for a couple of hours of work, right? Another note – if they can’t settle it and make the decision to file suit, they use lawyers who are typically right out of school and pay them very little so there is extremely high turnover.
If you hire a lawyer to pursue the breaching party, many (including me) will charge by the hour. So, in my case, our initial consultation is free, then I would look at the contract and send a demand letter demanding the breaching party pay or face a lawsuit. Using the example above, if they settle prior to filing suit or very early on in litigation and pay the full amount, you may see a bill for lawyer services in the amount $1,000.00 or even less, meaning you would keep $49,000. Big difference, right?
On smaller cases or high volume, a collections agency may be the way to go. But ask yourself the question above first and foremost.