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Using a Collection Agency

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How to deal with delinquent payments.

Executive Summary

Think twice before sending past-due fee accounts to a collection agency. There is a risk that confidential client information will be disclosed in the process. And when clients are hit with collection actions, they often respond by alleging malpractice as a defense or counterclaim.

Avoid Collections If Possible

It is a bad sign if you have delinquent fees sufficient in number or size to justify sending them to a collection agency. At the very least, it suggests you might want to examine your fee structure and billing procedures.

But if collection is required, you should be aware of ethical and strategic concerns unique to law firms.

Alta Pro Practice Pointers

  1. Protect client confidences. Your duty to safeguard confidential information continues after the file has been closed. Be careful what you divulge to a collection agency. In many states, you can only provide the client’s name, contact information and amount of the debt.
  2. Scrub all documents of identifying data. Make sure you don’t inadvertently disclose your client’s bank accounts, business records or personal information.
  3. Consider your liability risk. Clients will often allege malpractice as a defense to a collection action. Even if the allegation is frivolous, it adds a level of complexity that puts the collection agency in the middle of a fight they are unaccustomed to waging. Dragging your liability insurer into the fray is also problematic. That could significantly increase the cost of defense and the likelihood of indemnity payments —which in turn may make it harder and more expensive for you to get future coverage.
  4. Select a collection agency with care. Make sure it conducts business in a professional manner. Does it comply with applicable state and federal regulations? Does it have professional E&O insurance? In what amount? Talk with the owners. Have they handled law firm collections before?
  5. Improve your internal procedures. How do you select your clients? Could the screening process be tightened? Are you communicating adequately about fees? Do you bill consistently and avoid accrued balances?
  6. Revise your engagement letter. It should clearly state how you charge for your services, how the client is expected to pay, and what will happen in the event of nonpayment. It should address case costs as well as attorney fees.
  7. Charge an advance fee or retainer. This will protect you when the client’s ability to pay is suspect.
  8. Monitor outstanding bills. Send reminders and follow-up notices. Have a policy for dealing with past-due accounts.
  9. Designate someone in the office to handle accounts receivable. This person should keep lawyers posted on the financial status of the cases they’re handling and contact clients about delinquent accounts.
  10. Calendar the statute of limitations. When possible, don’t sue for unpaid fees until the statute of limitations for legal malpractice has passed.

The Bottom Line: The best way to avoid having to use a collection agency is to get paid upfront.

What’s Next?


Have a question about collecting fees? Ask the Risk Pro!


Looking for pointers on avoiding online scams? Click here!

Heads up!
This information is intended for informative purposes for members of Alta Pro Lawyers Risk Purchasing Group. It is not intended as legal advice. Lawyers should always refer to local and state rules and statutes for applicable standards and rules. These guidelines are designed to help lawyers avoid professional liability claims and are not intended for any other purpose. No legal or fiduciary relationship is intended to be created by receipt of this material.

© 2019 Alta Pro Lawyers Risk Purchasing Group – All Rights Reserved

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In an age of consolidation where increasingly impersonal transactions have made customer service an oxymoron, we bring together independent agents, insurance companies, and other industry specific service providers to develop and deliver insurance products and risk management solutions that benefit our insurance customers.

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Colleen L. Byers

Colleen Byers Mediation, LLC