When a Collection Agency Is Enough, and When You Need a Lawyer

Creditors with overdue accounts have two professional options for outside collection: a collection agency or a collections law firm. Both have a role. They use different tools, charge differently, and work in different situations. The choice matters, because picking the wrong one often produces no result and burns time the matter can’t spare.

This page is our honest framework for that decision. We’re a collections law firm, but we have no interest in pulling matters away from agencies that can resolve them on their own. The right answer is whichever one recovers the money efficiently for the matter in front of you.

What a Collection Agency Can Do

A collection agency works on a non-litigation basis. Its tools:

Letters and calls. The agency contacts the debtor by mail, phone, and (subject to applicable rules) email, pressing for payment.

Credit-bureau reporting. Many agencies report unresolved debts to the credit bureaus, which can affect the debtor’s score and create indirect pressure to pay.

Skip tracing. Agencies can locate debtors who have moved, using commercial databases and standard skip-tracing techniques.

Negotiation. Agencies can negotiate settlements within the parameters the creditor sets.

Acceptance of payment. Agencies process payments and remit them, less their commission, to the creditor.

The agency’s pay is usually a percentage of recovery, with nothing earned on matters that don’t produce. Common rates run from 25% to 50%, often varying by the debt’s age and amount.

What a Collection Agency Cannot Do

An agency’s tools run out where litigation begins. It can’t go to court, so it can’t file a lawsuit, take a deposition, issue or serve a writ of garnishment or execution, obtain a turnover order, pursue contempt, foreclose a judgment lien on real property, or take any other step that requires a lawyer’s representation in court.

If the debtor simply ignores the agency, the agency is out of options. A creditor who hires an agency on a debtor who ignores it pays nothing in cash but can lose months of time, months in which the debtor’s circumstances may get worse.

What a Collections Law Firm Can Do

A collections law firm has the agency’s tools (we send demand letters, make calls, negotiate, and settle) and adds the litigation toolkit:

• Suit on the underlying debt, by petition for breach of contract, suit on sworn account, suit on a note, or another appropriate cause of action
• Default judgment when the debtor doesn’t answer
• Summary judgment when the debtor’s answer fails to raise a fact issue
• Trial when the matter has to be tried
• Post-judgment discovery to identify the debtor’s assets
• Writs of garnishment, execution, and turnover
• Foreclosure of judgment liens
• Receivership proceedings
• Contempt proceedings, including arrest for violating a court order (not for the debt itself), against debtors who refuse to comply

The litigation toolkit is the whole difference. Once a debtor stops cooperating with informal collection, only litigation produces recovery. Letters and calls won’t get there.

When the Agency Is the Right Tool

An agency is the right tool when:

• The balance is small enough that litigation cost would exceed the expected recovery
• The debtor is responsive to informal pressure (paying slowly, but not stopped)
• The matter is in early-stage delinquency where a third-party push may produce payment without further work
• The creditor isn’t committed to litigating if informal pressure fails
• The debtor is geographically distant in a market where local litigation cost runs high

For these matters, the agency’s percentage is reasonable for what it produces, and the lack of litigation risk is a real benefit.

When the Law Firm Is the Right Tool

A law firm is the right tool when:

• The debtor has stopped responding to informal collection
• The balance is large enough to justify litigation cost
• The debt has documentation that supports streamlined litigation (suit on sworn account, summary judgment on a note)
• The debtor has identifiable assets that take litigation tools to reach
• A personal guarantor exists whose personal assets are reachable
• The matter is approaching a statute-of-limitations deadline
• Setting a precedent matters (a creditor who litigates when necessary signals to other slow-paying accounts that it will pursue, which has portfolio-level value)

For these matters, a law firm’s tools produce recovery an agency can’t. The cost is higher than an agency’s percentage, but the recovery is real where the agency would produce nothing.

When to Use Both, Sequentially

A common workflow uses both: agency first, law firm second. The agency works the account on contingency. If informal pressure resolves it, the agency earns its commission and the matter closes. If informal pressure fails, the agency usually refers the file back to the creditor (or, where its contract allows, to a forwarding law firm), and the matter moves to litigation.

This sequence works well when:

• The creditor wants to give informal collection a chance before spending on litigation
• The agency’s relationship with the debtor’s industry or geographic market is useful
• The matter isn’t urgent on a limitations basis

It works less well when:

• The matter is approaching a limitations deadline (every month at the agency is a month not in litigation, and limitations doesn’t pause)
• The debtor’s profile says informal collection won’t work (the debtor has already stopped responding to the creditor’s own efforts, has a known pattern of resisting collection, or holds assets likely to be moved if pressure builds informally)
• The agency’s communications with the debtor end up useful to the debtor’s defense later (admissions of dispute, unauthorized settlement offers, and the like)

We advise clients on when to skip the agency stage and go straight to litigation.

Cost Comparison, Honestly

Comparing the cost of an agency to the cost of a law firm takes honest accounting on both sides.

Agency cost. Typically 25% to 50% of recovery, paid out of recovery. No upfront cost. Nothing owed on matters that don’t produce. The agency takes its commission off the top of every dollar recovered.

Law firm cost. Typically hourly, with the cost weighted toward the front end of the matter (intake, demand, filing, motion practice). For matters that resolve at demand, the cost is modest. For matters that go to summary judgment, it’s higher. For matters that go to trial, higher still. Post-judgment work carries its own cost, paid as the work is done.

Some firms work on contingency for collections matters; some lender clients prefer hourly engagements. We structure fee arrangements to fit each matter and each client.

The total-cost comparison. Where the agency resolves the matter, the agency is cheaper, because the litigation cost never happens. Where the agency produces no resolution, its cost is wasted (no recovery to take a percentage of, but months gone) and the law firm cost lands on top of that. So “agency first, then firm” often costs more, all in, than “firm first” for matters that were always going to need litigation.

If the debtor’s profile says litigation will be needed, going straight to the firm is often more cost-effective, even though the firm’s cost looks higher in isolation.

What the Firm Doesn’t Do

We want to be clear about what we don’t do, so creditors can make accurate comparisons.

We don’t:

• Operate as a collection agency (Texas Finance Code Chapter 392, the Texas Debt Collection Act, and the federal FDCPA are aimed mainly at consumer-debt collection; because our practice is primarily commercial, those consumer-collection regimes largely do not reach our work, and we comply with them where they do apply)
• Provide credit-bureau reporting services
• Run the high-volume call-and-letter operation that agencies use
• Take percentage commissions on small balances where the work is purely informal
• Handle consumer collection matters under the Fair Debt Collection Practices Act and similar consumer-protection statutes (our practice is primarily commercial)

When those services are what a creditor needs, an agency is the right call. Our practice is the litigation and post-judgment side.

How the Firm Decides What to Recommend at Intake

At intake on a new matter, our first question is whether litigation is likely to be necessary. We look at:

• The debtor’s response history to the creditor’s prior collection efforts
• The size of the balance relative to the cost of litigation
• The strength of the documentation
• The presence of guarantors
• The known asset profile of the debtor
• Statute-of-limitations posture
• The client’s tolerance for litigation cost and timeline

If we think an agency could resolve the matter, we say so and recommend the client try an agency before paying for a law firm. If we think the matter will need litigation, we recommend moving directly to our process. We don’t push matters into litigation that don’t need it.

Pick the Right Tool

The right tool depends on the matter. Agencies and law firms both have legitimate roles. The wrong tool produces no result and burns time.

If you have collection matters and aren’t sure which tool fits, contact the firm. We’ll evaluate them and tell you candidly which path is right, including when an agency is the better choice.

Contact us to get started or call 214-368-4686.

Related Pages

• For A/R Departments
• Our Debt Collection System
• Year-End Bad Debt Write-Off Decision
• Getting Started
• How to Preserve a Debt for Legal Collection
• Texas Collections Law FAQs