As a business owner, you’re ultimately responsible for managing the money coming into your company. If you’re in a field where you’re unable to collect payment in full, when the product or service is rendered, you likely have experience with clients not paying their bills on time. When a client doesn’t pay on time, you have several options: handle it yourself by sending out letters, turn the account over to a collection agency or turn it over to a collection attorney.

Many businesses forgo trying to handle collections themselves since the process is often daunting and there are many different rules and regulations that need to be followed. That leaves you to choose between using a collection agency and a collection attorney. Collection agencies and attorneys both have negative stigmas attached to them, but the truth is that using a collection agency or attorney can help you recover money faster so you can continue to grow your business. Here’s a breakdown of collection agencies vs. collection attorneys:

Debt collection agencies

Debt collection agencies are often the obvious choice for businesses that are looking to collect debt from clients. Debt collection agencies are aided by specialized phone systems, computers and software that help automate the process and make it more cost-effective and efficient in retrieving payments on delinquent accounts.

A majority of debt collection agencies in the United States work on a contingency, third party basis, so they are paid when they collect on debts that are owed to a company. There are many different business types that use debt collection agencies including doctors, hospitals, banks, auto lenders, utility companies and more. Most debt collection agencies collect debts for a fee or percentage of the total amount owed.

Collection attorneys

In addition to debt collection agencies, there are also lawyers who specialize in debt collection. Attorneys can be more cost-effective than a collection agency if you’re considering taking legal action against a client for not paying. A collection attorney may charge an hourly fee, collect at least one-third of the amount recovered or both. Attorneys usually charge a minimum fee or require that the debt meets a certain minimum requirement. Payment to a collection attorney doesn’t include any court-related fees connected with a lawsuit. If you’re not considering taking your client to court, you’re better off using a debt collection agency.

The main difference between collection agencies and attorneys is that a collection agency cannot sue a client. They are able to file a credit report, call you on the phone and write you letters, but in order to take legal action, they need to have an attorney do it. The Fair Debt Collection Practices Act (FDCPA) prevents collection agencies from pretending they are attorneys or acting as if they have attorneys on staff when they do not.

Most businesses go to a debt collection agency first and then turn to a collection attorney if they agency can’t handle the job. Regardless of whether you choose to use a collection agency or attorney, it’s important that you do your research first. Ask for a client list, try meeting with the owner or manager and ask any questions you may have before you turn over the debt.