Legal proceedings entail considerable expenses. The role of the organization’s legal collections department (or the finance department) is to monitor these expenses in various aspects.
The main settlement issues and principles of conduct
When working with an external law firm, three main settlement issues arise in which it is necessary to account for expenses:
- Expenses on lawyer’s warning letters.
- Court fees of all types and other expenses.
- Lawyer’s fees.
Expenses on lawyer’s warning letters.
According to the engagement contract, the lawyer will send the customer a warning letter (or more) according to the amount of the customer’s debt. The organization will determine the stage at which the lawyer is entitled to receive full or partial reimbursement for the letter’s expenses for a client who pays his debt in the pre-claim stage.
There are different possible variations at this point:
- The law firm will not charge anything at that stage but will receive a percentage of the collected amount during the warning letter stage.
- The law firm charges for printing, stamping, and, eventually, special delivery.
- A mix of the above, depending on the case type.
Court fees and other expenses
The lawyer will pay from his own account the cost of the expenses to the relevant entities in accordance with the costs in the engagement letter agreement and will submit to the organization a report on the expenses he paid. He will receive compensation up to and no later than X days from the transfer of the expense report file. After receiving the payment, the lawyer will send a receipt invoice in accordance with the procedures.
In some companies, it is customary to pay advances at the expense of monthly expenses. In these cases, a solid settlement process needs to be set, as this might rapidly become an accounting nightmare.
Rates and expenses
The fee rates are determined by the court system and the enforcement system, and the organization must adhere to these rates. Regarding other expenses arising from contracting with other suppliers, the lawyer must obtain approval from the organization regarding the supplier itself, as well as regarding the rates offered by that supplier, even before the supplier has started his work with the organization.
Regarding the receipt of reimbursement of expenses, procedures will be established that the lawyer must comply with – including the production of documents for expenses, billing according to an agreed rate, the date of billing according to the stages of activity in tasks such as skip tracing and delivering; The standards established with the lawyer will also be checked (ratio between delivery and skip trace and delivery).
Charges that are not in accordance with the agreement between the organization and the lawyer will be paid only after an exceptional approval process. It is important that the lawyer agrees in writing and in advance that he will not be entitled to expenses that exceed the framework of the agreed approval.
Charges that are not in accordance with the agreement between the organization and the lawyer will be paid only after an exceptional approval process. It is important that the lawyer agrees in writing and in advance that he will not be entitled to expenses that exceed the agreement’s framework.
Legal fees
The lawyer is entitled to a fee determined by the legal authorities and subject to the engagement agreement with the organization.
In cases of compromises or discounts, the amount of the fee will usually be determined according to the relative part of the actual collection from the amount of the original debt, and subject to the contract agreement with the organization.
Legal proceedings expenses
Skip tracing and delivery costs
Subject to the engagement letter agreement and a pre-agreed table of expenses, the lawyer will pay to external providers approved by the organization expenses for locating customer details, delivering warning letters, delivering pleadings, delivering judgments, delivering notices of opening a case for enforcement, foreclosures, and the like.
This depends on the country you are acting in. In some countries the deliveries are fully handled by the Court. However, even in these cases, alternative methods of delivery might be necessary. For instance, if the organization is not sure that the customer still lives at the address but has good reasons to believe the customer still has access to his email inbox and his mobile phone. In these cases, sending a copy of the documents by email or text message might be a good solution to reach the customer.
Once a month (or the agreed settlement period), the lawyer will transfer to the organization a summary of all the expenses in a digital file, together with relevant references according to the agreement and specifying the details of the debtor customer, including the principal amount. The principal amount will help the organization to perform quick sanity checks to verify that the expenses are still proportionate to the outstanding debt and in accordance to the agreement.
Court fees
During the management of the case, the lawyer is sometimes required to pay court fees at rates according to law. Once a month, the lawyer will transfer through a digital file a summary of these expenses together with relevant references according to the agreement and specifying the debtor client’s details, including the principal amount.
Special expenses
In cases involving significant debts, our organization may require additional details about the debtor, such as asset location and an assessment of their repayment capacity. This information aids in determining whether to proceed with collection efforts. Such cases necessitate a unique decision-making process, diverging from our standard lawyer agreements. The finance manager or legal collections manager typically authorizes these extraordinary expenses. Each month, a detailed report is provided, outlining these special expenses. This report includes all relevant references, exceptional approvals by the organization, and comprehensive information about the debtor, such as the principal amount owed.
Enforcement expenses
The lawyers acting on behalf of the organization are required to pay the amounts set by law for enforcement.
During legal proceedings, if the customer does not pay his debt, additional enforcement activities are taken, such as foreclosures and removal of foreclosed property, arrest warrants (in some countries), orders preventing departure from the country, etc. All these activities are paid by the lawyer on behalf of the organization.
Once a month, the lawyer will submit a digital file summarizing all these expenses, together with relevant references according to the agreement and specifying the details of the debtor client, including the principal amount.
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