Why use a law firm to collect debt?

by | 18 Jan 2023 | Business Law, Litigation

Many small business owners use debt collection agencies to recover debt from their customers.  However, savvy debtors know that if they simply inform the debt collection agency that they are not paying because of a contractual dispute, then there is very little the agency can do.

The benefit of using a law firm to recover a debt is that most debtors will take the demand more seriously if lawyers are involved. In our experience, a strongly worded letter of demand on our letterhead may be sufficient to encourage the debtor to repay their debts to you.
For the stubborn debtors, we can issue legal proceedings in New Zealand Courts to pursue the debtor. If you win your case in the Courts, then you will have many enforcement options to force the debtor to pay their debts.

Lastly, it may be more cost effective to use law firms to recover your debt, because law firms charge based on time and disbursement. In contrast, debt collection agencies charge a percentage of the debt as their fee, which can be as high as 20%. Most importantly, debt collection agencies do not necessarily have the ability to issue proceedings in Court. If they outsource litigation to another law firm, then that would increase your costs further.

However, there is not much point pursuing a debtor if they don’t have any money or assets to pay for the debt. You should research the debtor’s background to ascertain if they have the means to pay the debt before you commence formal proceedings. You want to avoid wasting time and money on chasing a debtor who does not have the ability to pay you.

If you have any questions about New Zealand insolvency law, speak to us at Capstone Law, and we will be happy to assist you.

Kenneth Sun

Kenneth Sun

Partner & CEO

Kenneth is the founding partner of Capstone Law.  Kenneth has a MPhil from the University of Cambridge, and he was also awarded the prestigious Dean’s Academic Achievement Award for graduating from the University of Auckland law school in the top 5% of his class. Kenneth has worked at some of the best law firms in the country before starting Capstone Law.


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