Part 1: What Causes it to “go legal?”

When an account is placed with a collection agency, the client usually gives the agency authority to place it with a lawyer if the agency believes this move would assist in the collection. As a result this step often requires the agency to pay the lawyer a percentage of the collection, which reduced the fee the agency will earn. The incentive, therefore, exists for the agency to do what it can to collect without legal placement. The better agencies understand that the legal service is part of the “full service package” that agencies provide and realize it goes with the territory. The agency may not make as much money on the legal accounts and, in fact, may lose money. But they understand the idea that the client wants to have its needs serviced and that the agency can be the team leader that gets it done.

Many things can cause the client or the agency to place the claim with a lawyer. First, it could be an account that has a security interest or a lien right that needs to be enforced by a lawyer. There may be a particular contract issue or defense that needs legal help to resolve. The agency’s collection efforts may not raise the “threshold of pain” high enough to get the debtor to pay and they may need to call in reinforcements. Perhaps the client has done everything reasonable (or the customer has done something unreasonable) and the client wants immediate suit. These are all reasons that might get the agency to place the account with a lawyer.

Clients also must recognize that not every uncollected account justifies placement with a lawyer. Yes, placement with a lawyer does not necessarily mean a lawsuit, but if the claim is of a certain size and the debtor is of a certain frame of mind, the agency (and probably the client) can tell it will not be collected without a suit. And the agency and client know that claims of certain size will never justify a lawsuit on a typical contingent fee basis. In many of those cases, even the court costs will be too much to risk on the claim. Those claims should never “go legal,” at least not without a clear understanding what is expected, and what the fee and cost expenses will be.