Receivable/Accounts - Information for Credit and Collection Issues

Monday, April 16, 2012

Legal Final Demands

Last week, I met with an enterprising young law clerk, and we were speaking about the credit and collection business. In that discussion, the issue of legal final demands came up – he told me his law firm provides demand letters to a national client, and is charging in excess of $300 per letter! They also charged an additional substantial contingency rate based on collections.  This is a common service offered to creditors, but it is important to know the strengths and drawbacks in such a collection program.

Legal letters have been a part of the collection industry for many, many years. There are many law firms well known for their legal demand letters within the industry. One of the more prolific service providers in the past was lawyer Mark Silverthorn, who in recent years has changed his clientele, and now acts as a consumer advocate.

Law firms are not required to be licensed in Ontario to perform collection activities (although some other provinces do require registration under their specific collection agency legislation), and I have no issue with these law firms participating in our industry, but I am constantly in amazement that there is such a fee charged (and paid!) for a letter like this. While an amount in excess of $300 is one of the higher amounts I have heard of, fees of $75 to $150 per letter are far more common, and creditors should understand that they are paying an excessive amount.

However, the letter on its own is insufficient as a collection tool – it requires a support structure to be truly effective.

The Power of the Legal Final Demand

A letter with the trade dress of a lawyer’s office will certainly create a sense of urgency, especially when matched with balances in excess of $2000 owed, where legal action, specifically a small claims court action, is viable.

However, there are a few caveats when using such a letter.

• Most lawyers will endorse their name or their firm’s name to a letter, but will direct the generation of such letters, or the inbound calls from these letters, to a junior clerk or paralegal. It is crucial that the letter is supported by knowledgeable staff, when agitated debtors call the letter imprinted on the letter.

• Many letters and their presentation or layout undermine their authority or urgency by lacking a signature, contact name, contact number, or include odd elements such as an unprofessional bar code or reference number. Clients purchasing a legal final demand letter service should certainly review the content of letters being sent out in representation of their company, and compare them to what other legal firms or collection agencies may provide.

• Some letters can take the form of a draft statement of claim – this is definitely something creditors wish to be aware of, and avoid. Until recently, the use of a draft statement of claim, specifically a prepared but unfiled claim being sent to a debtor to give them the impression a legal claim was forthcoming, was prohibited under the Debt Collectors Act. This Act was repealed on March 30th, 2011, but the Ontario Registrar for the Collection Agencies Act has on more than one occasion reprimanded agencies from having retained lawyers sending these out, this tactic draws a great deal of media attention, and more than one law firm has been investigated by the Upper Canada Law Society for issuing these documents.

• Many letters contain wording overstep the bounds allowed by the client or are in violation of the Collection Agencies Act. In some cases, the law firm’s wording on the letter can cause a frustration of claim, preventing actual legal action at a later point in time.

What Does The Legal Letter Achieve?

Creating a powerful and professional legal final demand with the right software and printing equipment is easily done, and can merge in consumer information, and even calculations of interest, payment deadlines, and other specific information.Ideally, the letter indicates to the consumer (or consumer company) that a lawyer’s services are available to address an unresolved claim, if necessary. Ideally, the letter should result in at least a 10%-20% liquidation of receivables, before any telephone contact is commenced. This can be a very efficient method of collections.

Ideally, a proper telephone work plan that follows a legal final demand will supplement and support such a letter being sent out, and create a sense of urgency and consequence for the consumer. Together with the letter, a strong liquidation rate can be achieved.

What If They Don’t Pay?

It is crucial that the creditor know what is being sent out on their behalf, and that these letters are not hollow threats. If a consumer does owe in excess of $2,000, payment arrangements are not achieved, and they are discovered to be gainfully employed, legal action should be considered, and undertaken.This is where a third party collection agency working in conjunction with a law firm can best achieve results – most agencies maintain excellent call support software and collection staff to schedule follow up calls and investigation on files if the legal final demand is not successful. As well, the collection agency can affect the consumer’s credit rating with a registered item if legal action is not currently viable.

If the consumer is not employed, or does not have assets that can be attached to a judgment, the wording of the legal letter should allow for the creditor’s current position to not be compromised, and the file should be watched carefully for future employment, regular contact should be made with the consumer, and the sense of urgency should be maintained.


If you have questions regarding legal final demands, or you are currently employing these letters, feel free to contact myself at Kingston Data and Credit. Our office has experience with legal final demands, and produces them in conjunction with Rabideau Law. We have found that a tailored collection program in support of a legal final demand letter can produce high liquidation rates, and present a strong image on the creditor’s behalf. For our rates and program information, feel free to contact ourselves.

Blair Wettlaufer
Kingston Data and Credit
Cambridge, Ontario