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Debtors refusing to make payments can be incredibly frustrating. Not only do you not get paid, but you also waste time trying to recover the debt, spending less time actually making money. Therefore, it often makes sense to hire a debt collection lawyer or agency. However, out of these two options, which do you choose? This article explains the pros and cons of both.

Each Has Different Strategies

An agency will make numerous attempts to obtain payment from a debtor, including phone calls, letters, emails and private messages on social media. In some cases, they may also meet the debtor in person. Debt collectors have a reputation of having dogged determination, so much so that ASIC has published articles informing debtors of their rights and outlining unacceptable behaviour of debt collectors.

A debt collection lawyer, on the other hand, is more likely to escalate a debt recovery more quickly, immediately applying the maximum amount of legal pressure on the debtor. A lawyer will first send a letter of demand. If that does not prompt payment, a lawyer will generally advise you to commence court proceedings.

Furthermore, correspondence coming from a lawyer can carry more weight than a debt collection agency. A lawyer will threaten that legal action will commence immediately if payment is not made. This can compel the debtor to pay more quickly. However, a debt collection agency can only say that the matter will be passed on to their lawyer.

Debt Collection Agencies Work on Commission

Most debt collection agencies offer their services on a ‘no recovery, no charge’ basis. If a collections agency is successful in recovering a debt, they will normally charge a commission. The amount of the commission will be calculated on a sliding scale relative to the amount of debt being recovered. Smaller debts typically have greater commission percentages:

Amount of Debt Commission Percentage Amount paid in commission
$5,000 20% $1,000
$15,000 15% $2,250
$60,000 10% $6,000


However, the amount of work the debt collector does on your behalf does not affect the commission percentage. They recover the same commission regardless of whether they send one letter or make numerous phone calls.

Therefore, a debt collection agency can be a good option if you are certain that you do not wish to commence legal proceedings and you believe the chances of recovery are slim.

Lawyers Offer Fixed-Fee Billing

Debt collection lawyers do not work on commission. Instead, they will often offer fixed-fee rates for undefended debt recovery work. This includes pre-litigation steps such as a letter of demand all the way through to obtaining default judgment and enforcement proceedings. Fixed-fee billing provides certainty about the legal costs, so there are no nasty surprises.

Because a lawyer is not on commission, the lawyer will also only charge you according to the work they do. If the lawyer only needs to send one letter of demand, then you only pay for that one letter of demand. This can make a debt recovery lawyer cheaper than a collection agency in some cases.

Lawyers Have Lower Costs if Court Action is Needed

A debt collection lawyer also has the advantage of lower potential costs if you need to take court action. This is because if an agency will outsource the legal work to a lawyer who is not familiar with the case. Getting them up to speed means an additional cost.

Furthermore, if you hire an agency, and the debt is successfully recovered in court, you will also be required to pay the agency’s commission in addition to any legal fees.

A debt collection lawyer, however, will already have done the preliminary work, allowing them to start court action straight away. You will also not have to pay a commission on top of the legal fees.

In all cases, the legal costs you can recover in debt recovery proceedings are capped. Therefore, you should not expect to recover all the legal costs. A fixed-fee lawyer may give you more certainty, as you can negotiate the fee upfront, taking into account anticipated costs.

Key Takeaways

When hiring a debt recovery professional, you have two options — an agency or a debt collection lawyer. Because of their commission payment, the agency may be suitable if you believe the chances of successfully recovering the debt are slim. You will not pay the commission if you do not recover the debt. On the other hand, a debt collection lawyer can often be cheaper, as you pay a fixed-fee upfront. This makes the lawyer a better option for debts you expect to successfully recover, as well as debts that you intend to go to court over.

LegalVision offers fixed-fee rates for all undefended debt recovery work. If you want further advice on recovering your debts, call LegalVision’s debt recovery lawyers on 1300 544 755 or fill out the form on this page.


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