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Anatomy Of The Collections Process:  An Overview With Efficiency Tips From A Seasoned Collections Lawyer

ANATOMY OF THE COLLECTIONS PROCESS:  AN OVERVIEW WITH EFFICIENCY TIPS FROM A SEASONED COLLECTIONS LAWYER

I. Introduction.  

Tip:Seek the expertise of fellow collection attorneys.  Experience, even borrowed, is important in your practice.  This is especially true as local practice varies from county to county.

As with any area of the law, there are attorneys who can do a better job of collecting debt than others.  Likewise, any attorney can collect debt if he/she puts his/her mind to it.  The purpose of this outline is to provide a skeletal outline of what one should know in order to proceed with collecting debt, plus practice tips gleaned from years of collecting debts in Texas and study of the collections process with other seasoned collectors.  I have been privileged to serve on the committee responsible for editing the Texas Collections Manual, Third Edition, published by the State Bar of Texas.  Each time the committee meets we share experiences and learn something new.  So, I must say thanks to my fellow committee members for their many contributions to what I know about the collections process:  Dan Goldberg (Houston), Bruce Atkins (Houston), Stuart Schwartz (El Paso), Dean Hester (El Paso), Manny Newburger (Austin); Barbara Barron (Austin), Stephen Sather (Austin) and Darlene Smith (Houston), Marty Novak (Austin, as well as Sharon Sandle of State Bar Books and Systems.  

II. Fee Agreement.

Tip:As with any client relationship the fee agreement is key to defining the financial arrangement between the attorney and client.  The signed fee agreement and any required retainers should be in hand before the demand letter goes out.

A. Fee Agreement.

The fee structure available for collection matters will vary from firm to firm.  Some collectors will handle collection matters on an hourly basis and others on a contingent fee basis.  The size of the accounts and their collectability will often dictate which arrangement makes the best business sense for

the client.  Collections on a contingent fee basis should not be considered to be “free”.  Even though attorney’s fees are not paid out of pocket, a portion of the account will go to the attorney if collected.  And, regardless of whether the account is collected, there will still be costs associated with filing and service of the suit, perhaps copy and mailing costs, and various fees for post-judgment writs and service costs.  Further, most contingent fee agreements provide for conversion to an hourly fee if a counterclaim is filed and must be defended.  The best fee arrangement will vary and sometimes require the creditor to periodically do a cost benefit analysis of its collection activities.  Similarly, the attorney accepting a collection matter will need to do a cost benefit analysis on whether to take the case.  As always, the fee agreement should be in writing.  To be enforceable, a contingent fee arrangement must be in writing.  Texas Disciplinary Rules of Professional Conduct 1.04(d).  Sample hourly and contingent fee agreements are included as Attachments 1 and 2 to this paper.

Tip:While the fee agreement is an important first written communication with the client, follow up communications serve to nurture the attorney/client relationship and insure its success.

B. Client Communications.  

Attorney disciplinary committees will tell you that the number one client complaint is failure to return phone calls.  This should tell you that client communications should be a number one priority.  Communications include:  copying the client with all documents generated in the file, responding to phone calls and email inquiries promptly, taking the time to drop the client a one minute email status report as events unfold in the file and also when there are delays on the file’s progress, accurate and detailed invoices of fees and expenses, regular and detailed disbursements of funds collected, and monthly status reports that also serve as internal dockets.

III. The Client’s File.

Tip:Adequate documentation of the claim to be collected will kick start an effective collection action.  With repeat creditor clients, the “package” will evolve over time to include regularly used information.  For one-time collection matters, the list of documents and information to include can be set out in the fee agreement.

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