As with any other service, there are good and bad commercial
collection agencies. Beware of any agency that offers you cut rate
commissions far below the accepted Commercial Law League rates, offers
you kickbacks on commissions, or makes outlandish promises about
You should investigate, evaluate and rate the commercial collection
agencies that you plan to use just as carefully as you do with customers
when you grant credit. Here are some suggestions:
Collection Agencies That Specialize In Commercial Collections
If you consider a nationally known commercial collection agency or
network, ask for references within your industry. Call these references
to see how satisfied they are with the agencies success rate, and how
quickly they remit the funds collected.
If you consider a local commercial collection agency, in addition to
checking references, also ask for financial information and the name of
their bonding insurer. Check with the insurer to confirm coverage and
Check with other credit professionals in your own industry to see what
commercial collection agencies they use. Many commercial collection
agencies specialize in a particular industry. This can be an advantage
because these agencies usually know the debtors, and are familiar with
the industry conditions. Many of these agencies also provide adjustment
bureau services, where they will provide space, secretarial services,
and perhaps even legal counsel for debtors and creditors to attempt out
of court settlements.
Using A Commercial Collections Agency
When you turn an account over for collection, make sure you give the
commercial collection agency a complete package. This should include:
A Statement Of All Charges
Copies of purchase orders, invoices, proofs of delivery, contracts, etc.
Photocopies of customer's checks for any partial payments.
Any correspondence sent or received on any of the outstanding items
together with any claims of shortages, non-conforming goods, breakage,
If you have personal or corporate guarantees and/or any security
agreements, include copies of these, along with copies of any UCC forms
showing the dates filed.
The more back-up detail the agency has, the better it can work for you.
If the matter has to go to suit, you would have to provide this
information anyway, so you might as well do it at the beginning of the
process. If any paperwork is missing, it gives you time to locate it.
Unless there is a good reason for you to become involved (i.e., a return
of merchandise or a valid claim which reduces the amount owing, and you
issue a credit memo) do not interfere with the process between your
customer and the agency. You hired the agency, so let them do their job.
Many times a customer will contact you, and try to make a deal so they
won't have to pay collection charges or have their reputation tarnished.
The customer may also threaten you with a counter-suit because of a
product problem or state that if you press the claim, they will never
again do business with you. Stand firm, however, if they do threaten
suit, let the collection agency and your own legal department know about
Before you place a claim with an agency, you should have determined
whether you plan to eventually press for suit and judgment if the agency
cannot collect amicably. You do not necessarily have to let the agency
know of your decision at this stage, but you should have a plan of
action in place.
Dealing With Commercial Collections Agencies & Attorneys: Fundamental Terms And Principles
Commercial Collection Agencies Fees
The fees charged for the collection of claims may differ from agency to
agency. There are also various types of fee arrangements that may be
A "commission" is the compensation payable by a creditor and earned by a
receiver for services rendered in effecting collection of a commercial
claim. It is normally contingent and computed as a percentage of the sum
A "retainer" is a sum of money paid in advance to retain the services of
an attorney and should be taken into account in determining the ultimate
fee to be charged for services rendered and results obtained.
A "suit fee" is a fee payable to the receiver, in addition to the
commission, for legal services rendered by the receiver for you,
involving court action concerning the prosecution of a commercial claim.
The "suit fee" is intended to apply to the handling of the litigation,
including post-judgment proceedings.
Defense of a counterclaim is
considered a separate action, generally handled under a separate fee
arrangement. The authorization for suit does not necessarily imply the
authorization to defend a counterclaim. A specific authorization and fee
arrangement should be discussed at the first hint of a counterclaim.
The amount of the suit fee is a matter of contract between the receiver
and the creditor, as is the question of whether the suit fee is to be
contingent or non-contingent, or partly contingent and partly
non-contingent. A suit fee, if earned, is payable in addition to
commissions. It belongs exclusively to the receiver unless there is a
division of service and responsibility between the receiver and an
attorney forwarder. The suit fee agreement preferably should be entered
into before suit is commenced, and the fee should be commensurate with
the services rendered, the amount involved, and the results
"Court costs" include, but are not limited to: sums required to be
deposited for filing an action, fees paid for the service of process and
witness fees. You as the client, should first approve other
out-of-pocket costs before they are expended. Unless otherwise agreed by
you, telephone calls, skip-tracing investigation, postage and expenses
for the duplication of material are considered normal office operating
expenses absorbed by the receiving attorney. At no time should a
receiving attorney incur unusual out-of-pocket expenses without the
Agencies deal with the collection or settlement of claims asserted by
one individual or business entity against another. There are two types
of claims. A "commercial claim" is an obligation incurred during the
course of conducting a business which arises from goods sold or leased,
services rendered, or monies loaned for use in the conduct of a business
or profession. A "retail" or "consumer claim" is an obligation incurred
primarily for a personal, family or household purpose.
Not all commercial accounts are based on open account balances; some
claims may be based on lease agreements, security agreements,
consignment transactions, guarantees or on almost limitless variations
of similar business transactions. It is necessary that the agency be
familiar with the available legal means of effecting collection of such
specialized types of claims. This requires specialized knowledge of
creditors' rights with respect to perfecting a lien, enforcing a
security interest, as well as effecting collection.
A "forwarder" is the agent of the creditor who refers claims to
attorneys for collection. A forwarder may be an attorney, a commercial
collection agency, or a credit insurance company that acts on behalf of
the creditor in the referral of claims for collection. The attorney who
receives the claim is a "receiver".
Claims emanating from a forwarder are usually forwarded to an attorney
because the debtor is outside of the forwarder's jurisdiction and the
forwarder has been unable to obtain payment. Forwarding is approved by
the prior express authorization of the creditor-client for whom the
forwarder serves as agent. Thereafter, you, the creditor becomes the
client of the attorney. The forwarder, however, continues as agent, to
facilitate the handling of the claim between the receiving attorney and
the creditor. Because forwarders have certain expertise and are relied
upon by the creditors, it is the usual practice that all correspondence
and contact by the attorney with the creditor be through the forwarder.