Most building suppliers at some point require the services of attorney for collection of outstanding accounts. To maximize the suppliers’ benefit, the supplier should be as informed as possible on the range of fee options and what supplier can do to minimize what legal expenses must be incurred.
Legal fees typically take three forms: hourly, contingency fee and flat or fixed fee. Hourly is where the attorney has an hourly rate such as $80.00 per hour and bills for the time he works on each case. Contingency fee is where the attorney only receives payment when funds are recovered. The contingency payment to the attorney is typically based on a percentage of recovery such as twenty percent (20%). Typically, the percentage charged changes based on the status of the case, such as twenty percent (20%) recovery prior to filing suit and thirty percent (30%) after filing suit. Fixed or flat fees are predetermined set fees for particular legal services. For example, forty dollars ($40.00) for a demand letter or one hundred twenty dollars ($120.00) for a complaint.
The above fee structures are the most common; however, some attorneys will mix and combine the above fee structures. For example, some clients will turn cases over to attorneys for a flat fee on the demand letter and then convert the case to contingency fee for the lawsuit. There are numerous other possibilities to combine and mix and match the above fee structures.
In addition to knowing how attorneys charge for fees, there are numerous steps the supplier can take in order to minimize their legal expense and to maximize their attorney’s legal case. These self help steps will save you money and time in pursuing outstanding balances. These steps including properly preparing and completing all paperwork when the account is opened. Far too often, credit applications are grossly incomplete or do not exist. By failing to properly complete the credit application and personal guarantees when executed, the supplier is opening the door for its debtor to make legal defense to the debt. By contributing to the debtor’s legal defense, the supplier is increasing the work needed to be conducted by their own attorney and, thereby, increasing the supplier’s attorney’s fees, extending time before the case can get to court, or worse yet reducing the value of the case. It is critical that all supplier have a thorough credit application and that said application is properly and completely answered.
Another step suppliers can take to reduce their legal expense and increase their recovery is account monitoring. This area is very subjective and based on the particular goals and resources of each individual supplier. Far too often, suppliers will hold a case and hold a case and then after an extended period of time turn the case over to an attorney. In the latter scenario there is often little, if anything, an attorney can now do to help. Each supplier should balance the expense of an attorney with the risk of never recovering any funds. In addition, there is the financial benefit to recovering your outstanding balances sooner even if they are going to ultimately be recovered. What suppliers should do is evaluate the cost to attempt recover against the loss risk or the benefit of earliest recovery. In addition, suppliers should obtain legal representation which maximizes its legal expense to loss risk and its legal expense to early recovery benefit. By properly evaluating and monitoring accounts, suppliers should be able to establish guidelines on turning cases over to their attorney. The establishment of guidelines also removes the emotion of the case and the potential damage of waiting and continued broken promises by debtors. By maximizing your legal fee arrangements, suppliers can increase their collection flexibility and ultimately reduce their collection expenses and increase bad debt recovery.
Far too often, suppliers are unaware of their legal representation options and are thereby locked into a fee arrangement which may only partially benefit the supplier. The supplier should take whatever steps are necessary to get the most bang for the buck and if their attorney is unwilling to cooperate this may be an indication of whose interest that attorney is looking out for on your cases. Suppliers should understand what fee arrangements are available, what arrangement best suits their needs and coupled this with account guidelines which assure cases will be timely turned over to an attorney to maximize recovery.
Mr. Busch is an attorney specializing in commercial and construction litigation for Busch, Reed, Jones & Leeper, P.C. in Marietta, Georgia