Friday, November 23, 2012

Benefits and Pitfalls of Legal Demand Letters

Benefits and Pitfalls of Legal Demand Letters

When you’re calling your slow-paying customer and receive yet another broken promise, some of the options to choose from include: 1) Sending a lawyers demand letter, or 2) sending a collection agency 10 Day Demand letter. So what happens next if the customer doesn’t respond? 

So let’s review your options
Lawyers Demand Letter
When retaining a law firm to send a legal demand letter, some firms will charge for this service and others will not. Receiving a demand letter from a law firm can be very intimidating and a good portion of your customers will respond favourably. In this instance, your cost to collect the account is minimal. So what happens if the customer doesn’t respond to the legal demand letter? Generally, the vast majority of law firms work on an hourly fee basis. And while your lawyer hopes you receive payment, the underlying goal is that your customer doesn’t respond, so the law firm can begin billing you their hourly fee for their services. When this happens, your total cost to collect the debt begin to add up and you will receive a bill from the firm whether the claim is collected or not.

Collection Agency 10 Day Demand
A 10 Day Demand Letter from a collection agency is substantially similar to that of a law firm. The idea is that if your claim is paid in full within the 10 day period, there is no fee to you. Should your customer only pay a portion or nothing at all, the collection agency will automatically begin recovery efforts on the balance remaining and their No Collection – No Charge collection fees would apply. Like law firms, agencies issue these demand letters to provide a valuable service to their good customers. However agencies also hope that the account rolls into collections as this is how they make money. The major difference between an agency 10 Day Demand letter and a lawyer’s demand letter becomes evident when your customer doesn’t pay. The collection agencies fees are only applicable when they collect. And the agency is very motivated to recover your funds, so they will make many calls to your customer and report your claim to the appropriate credit bureaus, whereas most law firms do not report to the credit bureaus. Collection firms don’t wait to receive instructions from you, or charge for reporting to you, they simply take whatever steps they deem necessary to negotiate with your customer for payment, making the collection process a little more simple.

So what’s the bottom line?

Generally a demand letter is very effective if the creditor sends it out early rather than waiting until it’s too late. The cost of a free legal demand letter and a free collection agency 10 day demand letter only becomes evident when the customer doesn’t pay.

The Risks and Rewards of Credit Reporting

The Risks and Rewards of Credit Reporting

Recently, the Canadian Broadcasting Corporation (CBC) did a news article surrounding erroneous credit reporting and the effects on Canadian consumers. And while this article primarily deals with individual consumers, corporations are affected as well. Click HERE to view the article.

A credit bureau is a centralized database where creditors and other data furnishers share information about a consumers credit history and payment habits. Authorized members can access your personal credit file for reasons such as debt collections, or other permissible purposes.

An individual or company’s credit score can go up (good) or down (bad), depending on factors such as making payments on time, level of debt outstanding, use of credit, and whether or not you have any judgement or collections against you. Your credit score determines if you qualify for credit, and if so, what interest rate you will pay.

Low risk = low interest  Higher risk = higher interest.

The premise of CBC news article is that credit reports containing errors are costing Canadians millions of dollars in unwarranted high interest rates.

Priority Credit Recovery is considered a data furnisher as we report collection claims to Equifax, Trans Union, DNB Canada, and Lumbermens. While it is our client’s responsibility to ensure the debts assigned for collection are legitimate debts, we do not always obtain the information necessary to report our client’s claims to credit bureaus.

At a minimum we require: name of debtor, complete address, amount outstanding, and the date of delinquency.

Reporting collection claims to the credit bureaus is an excellent collection tool; however it can be a huge waste of time and resources for your collection service provider if your data contains errors.

Bottom line – if you want to avoid being named in a future news articles or government consumer investigations, make sure you work with your collection service provider to ensure they are receiving all the data they need.

3 Rules to Follow When Collecting American Debt

3 Rules to Follow When Collecting American Debt
Lack of Checks and Balances Can Have Devastating Consequences

      In business freedom from onerous legislation and red tape can make for simple, fast transactions. Unfortunately sometimes not all participants are in business for the right reasons and a few bad operators can spoil it for everyone.

      While the U.S. economy is founded on the principle that “the best type of government is one that governs the least”, over the years many states have realized that some basic rules and principles were needed when considering credit-related transactions. Having a basic understanding of the laws and how certain states apply or not apply them can greatly enhance your chances of success while avoiding potentially dangerous pitfalls.

Is Your Company Serious About Doing Business in The USA?

      If your company is committed to long-term sustainable business with American markets, the first rule when collecting from your US customer is to hire an American collection agency that adheres to the Fair Debt Collection Practices Act (FDCPA). We do not recommend using a Canadian-based agency to act for you in the U.S.A. If the Canadian agency does not exactly follow the FDCPA, your firm runs a very high risk of being sued by the debtor’s attorney. There are literally hundreds of U.S. attorneys who maintain very profitable practices suing collection agencies and creditors who do not follow the FDCPA. A competent U.S. collection agency is well versed on the FDCPA and will significantly reduce the legal risk to its clients. An excellent source of reputable U.S. collection agencies may be found through the collection industries professional association, ACA International (

Insured Trust Funds

      The second rule of hiring a U.S. collection agency is to ensure the agency is properly licensed, bonded and maintains a separate Clients Trust account. Unlike Canada where every agency is legislated to be bonded and maintain trust accounts – several states do not require client bonds or separate trust accounts. Using an agency in these states could lead to difficulties collecting from your collection agency! The State of Michigan requires that the amount of the client bond be reviewed annually increasing or decreasing according to the monthly average of funds flowing through the trust account. The bond acts as an insurance policy that if the agency does not remit trust funds – a creditor may apply to the bond to receive their trust money. Unfortunately the news headlines are filled with horror stories of missing trust money.

Insurance Against Law Suits

      The third rule of collecting from U.S. customers is to find ways to minimize the risk of litigation. Using a U.S. collection agency is a good start. Conscientious agencies that are serious about protecting their clients from frivolous law suits maintain professional liability insurance (Errors & Omissions). When choosing a U.S. agency, ask to see a copy of their Errors & Omissions policy. If litigation results from the agencies actions, the Errors & Omissions insurance will pay an attorney to defend you.

      Following these three simple rules when considering a collection agency for your American receivables will go along way to ensure your company is well represented with minimal reputational risk.

About the author: A 26 year collection industry veteran, Brad J. Lohner owns both   American and Canadian collection agency providing services to credit grantors on both sides of the border. Specializing in the wholesale distribution, telecom, business services, utilities and transportation markets Brad’s firms administer high volume – high balance business to business portfolios.