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.

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