Collection agency vs attorney for business debt

Updated 2026-10-24

For most unpaid business debts, start with a commercial collection agency. Agencies work on contingency, cost nothing up front and resolve many accounts through demand, negotiation and payment plans. Use an attorney when the debtor refuses to pay but has assets, the balance justifies court costs, a deadline like the statute of limitations is close, or the case involves liens, guarantees or bankruptcy. Many agencies forward accounts to local attorneys when suit is needed.

The short version

A collection agency is built to get a debtor to pay voluntarily. An attorney is built to make a debtor pay involuntarily, through a judgment and enforcement. Most business debts get paid before anyone has to go to court, which is why agencies handle the bulk of commercial collections. But an agency cannot file a lawsuit for you or give you legal advice, and some accounts need exactly that.

The right choice depends on four things: the size of the balance, the debtor's willingness to pay, whether the debtor has collectible assets and how much time is left before legal deadlines.

Age matters too. Commercial Law League of America figures published by NACM show collectability falling from about 94% at 30 days past due to 74% at 90 days and 27% at one year. Whichever route you choose, choosing it early is worth more than choosing it perfectly. An account that sits for months while you debate the options loses value every week.

What a commercial collection agency does

• Contacts the debtor by phone, email and letter on your behalf, usually starting within a day or two of placement
• Locates debtors who have moved, changed names or stopped answering (skip tracing)
• Reviews the debtor's situation: business status, liens, judgments and other public records
• Negotiates lump-sum payments, settlements you approve and written payment plans
• Reports back on whether the account is worth pursuing legally
• Coordinates suit through a local attorney when the debtor will not pay, if you approve

What a collection attorney does

A licensed attorney can send demand letters on law firm letterhead, file suit, appear in court, obtain a judgment and use court tools to enforce it. Those tools include bank levies, garnishment of the debtor's receivables, judgment liens on property and court-ordered examinations of the debtor's assets. An attorney can also advise you on your rights under a contract, a personal guarantee, a lien statute or a bankruptcy case.

In most states a corporation or LLC must be represented by an attorney in court, apart from small claims in states that allow it. So if your claim needs to go to regular civil court, you will need a lawyer licensed in the state where you sue, which is usually the state where the debtor is located or the one named in your contract.

How each one is paid

Commercial collection agencies typically charge a contingency fee, a percentage of what they recover, often somewhere between 15% and 50% depending on the age and size of the debt. If nothing is collected, you usually owe nothing. Flat-fee letter programs also exist for early past-due accounts.

Attorneys may bill hourly, charge a flat fee for a demand letter or suit, or work on contingency for collections. Even on contingency, the creditor usually pays court filing fees and service costs, and some attorneys ask for a modest non-refundable suit fee. Whether you can recover attorney fees from the debtor generally depends on your contract or a specific statute. Under the usual American rule, each side pays its own fees unless an agreement or law says otherwise.

When to start with an agency

• The debtor is still operating but slow, unresponsive or making excuses
• The balance is too small to justify court costs on its own
• You are not sure whether the debtor has assets and want an assessment first
• You want the account worked quickly without an up-front cost
• You have many past-due accounts at once and need volume handled consistently

When to go to an attorney directly

• The debtor has clearly refused to pay and has assets a judgment could reach
• The statute of limitations is approaching and suit must be filed to preserve the claim
• You need to file or enforce a mechanics lien, bond claim or personal guarantee
• The debtor has filed bankruptcy and you need advice on your claim or a preference demand
• The dispute involves substantial contract issues that will be decided by a judge anyway

How the two work together

In practice, the choice is often not either-or. A well-run commercial agency sorts accounts: most are resolved through contact and negotiation, and the ones that are worth suing get forwarded to an attorney in the debtor's jurisdiction. That means you do not have to find and vet a lawyer in another state yourself, and the attorney gets a file that already includes the debt documentation, communication history and asset information.

That is how we work. We are a collection agency, not a law firm, and we do not give legal advice. We collect commercial accounts on contingency, and when an account needs suit we recommend a local attorney and share the expected costs. Nothing is filed without your written approval.

Frequently asked questions