Debt Collection Solicitor v Debt Collection Agency: What’s Best?
Introduction
Unpaid invoices can have a terrible impact on cash flow. As a business, when you are owed money, you are faced with a choice: instruct a debt collection solicitor or engage a debt collection agency.
For businesses dealing with business-to-business debts, making the correct decision can significantly affect the amount of cash collected and your business relationships.
In this post, we will look at what is best: debt collection solicitor or debt collection agency.
What Does A Debt Collection Solicitor Do?
We’ve looked at the work of debt collection solicitors previously. Essentially, they are qualified solicitors who specialise in the recovery of unpaid debts.
The debt recovery service offered by debt collection solicitors can include the use of:
- Letters before action.
- Late payment letters.
- Pre-action protocol letters.
- Court action.
- Obtaining judgments.
- Enforcing judgments.
- Insolvency proceedings.
What Does A Debt Collection Agency Do?
A debt collection agency is a third party agency that also specialises in collecting overdue debts. However, they do have their limitations. The approach adopted by debt collection agencies is generally based upon a work flow of repetitive contact, via telephone calls, template letters and template e-mails. Some debt collection agencies even make door step visits.
Debt collection agencies typical charge on the basis of a commission. They will take a percentage of any money they recover on behalf of a creditor.
What Can A Debt Collection Solicitor Do That A Debt Collection Agency Can’t?
- A debt collection solicitor can conduct litigation (the conduct of court proceedings). This is a “reserved legal activity” under the terms of the Legal Services Act 2007.
- A debt collection solicitor can issue legal proceedings.
- A debt collection solicitor can deal with defended actions.
- A debt collection solicitor can provide legal advice.
- A debt collection solicitor can advise on the appropriateness of insolvency proceedings, if a debtor appears to be insolvent.
Key Differences At A Glance
| Aspect | Debt Collection Solicitor | Debt Collection Agency |
|---|---|---|
| Services Offered | Debt collection solicitors are typically able to offer both pre-issue and post-issue services, meaning they can deal with the process of collecting a debt from start to finish. | Debt collection agencies are typically only able to offer pre-issue services, such as chasing debts by letters, e-mails and telephone calls. |
| Ability to Conduct Legal Proceedings | Debt collection solicitors are able to conduct legal proceedings on behalf of creditors. | Debt collection agencies are not able to conduct legal proceedings on behalf of creditors (unless authorised to do so by a regulatory body, such as the Solicitors Regulation Authority). |
| Ability to Enforce Judgments | Debt collection solicitors are able to enforce judgments using methods of enforcement action, such as making application for a warrant of control or a writ of control. | Debt collection agencies are not able to enforce judgments using methods of enforcement action (unless authorised to do so by a regulatory body, such as the Solicitors Regulation Authority). |
| Fee Structures | Debt collection solicitors typically offer fixed prices for the work they undertake and/or charge on the basis of an hourly rate if a debt becomes disputed. | Debt collection agencies typically charge on the basis of a commission. In other words, they will take an agreed percentage of any recoveries they make. |
| Impact | Written communications from debt collection solicitors can carry more weight than communications from debt collection agencies. | Communications from debt collection agencies are typically based on template documents and may be less formal than communications from debt collection solicitors. |
| Regulation | Debt collection solicitors are typically regulated by the Solicitors Regulation Authority. | Debt collection agencies are not regulated, unless collecting consumer debts - in which case, they are regulated by the Financial Conduct Authority. |
| Escalation | Debt collection solicitors are able to escalate pre-issue debt recovery to legal proceedings. | Debt collection agencies are not able to escalate pre-issue debt recovery to legal proceedings, unless regulated by a regulatory body such as the Solicitors Regulation Authority. |
Why Choose A Debt Collection Solicitor Over A Debt Collection Agency?
There are several reasons why many businesses prefer solicitors, especially for business-to-business debt collection:
-
Legal Authority: A solicitor’s letter carries far more weight than a standard debt agency letter. Debtors know the next step is court, not another phone call.
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Cost Efficiency: For undisputed debts, legal costs can often be recovered from the debtor, reducing your out-of-pocket expenses.
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Dispute Resolution: If the debtor challenges the invoice or raises a legal defence, a solicitor is already equipped to advise and act accordingly.
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End-to-End Service: From initial demand to enforcement, a solicitor can manage the entire process without needing to hand the matter off to a third party.
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Professionalism & Regulation: Solicitors are held to high regulatory standards, giving you added confidence in their approach and conduct.
For commercial debts – especially higher-value or disputed ones – the added protection, expertise, and enforcement capability of a solicitor can prove invaluable.
Conclusion
While debt collection agencies can be useful in certain scenarios, particularly for lower-value or undisputed debts, they lack the legal authority and expertise that a debt collection solicitor brings. When it comes to business-to-business debt recovery, especially where disputes arise or legal escalation is likely, a solicitor generally offers a more effective, strategic, and reliable solution.