An invoice has been sitting unpaid for months. Calls go to voicemail, emails draw no reply, and every week the debt feels older and harder to recover. At some point you stop chasing it yourself and look for someone who will do it properly, which usually leaves two realistic options: a debt collection agency or a debt recovery lawyer. Both will pursue the money, but they are paid differently, work differently, and can end up in very different places. This article sets out the factors that decide which one fits your situation.
The question behind the choice
The choice is rarely agency or lawyer in the abstract. The question that actually decides it is whether you are prepared to take legal action if the debtor does not pay. If you are not, an agency's no recovery, no fee model keeps your costs at zero and your risk contained. If you are, engaging a lawyer from the start is usually cheaper than starting with an agency, because any debt that ends up in court has to be passed to a solicitor anyway, and you will have paid for two layers of work instead of one.
That points to an assumption worth naming. A commercial collection agency is not a law firm. It cannot start or run court proceedings on your behalf, and it cannot issue the statutory demands and winding-up applications that are the sharpest tools in debt recovery against companies. If the matter reaches the point of legal action, the agency has to hand the file to a law firm, which means briefing someone new and paying for the handover. The practical choice is therefore between a lawyer from day one and an agency that may become a lawyer later.
How you pay for each option
Collection agencies work on commission
Most agencies work on a no recovery, no fee basis. If they collect nothing, you pay nothing. If they collect, they keep a commission, usually a percentage of what is recovered that varies with the size and age of the debt. Smaller and older debts typically attract higher rates, because they need more chasing and are less likely to be paid. The rate is agreed before work starts, so the arithmetic is easy to check:
- No recovery, no fee: you have no outlay while the agency works.
- Commission on recovery: as an example, an agency charging 15 per cent on a $10,000 debt keeps $1,500 and you receive $8,500.
- Rate varies by debt: expect higher percentages on small or old debts and lower ones on large or fresh debts.
The agency's effort does not change the rate. It earns the same commission whether the debtor pays after one letter or a dozen phone calls, so its incentive is to resolve the debt as efficiently as it can rather than to invest time in it. For a debt you genuinely expect little from, that is the point: the downside is capped at zero.
Lawyers charge for the work, often at a fixed fee
A debt recovery lawyer charges for legal work, not for a share of the recovery. For undefended recovery, many firms offer fixed fees that cover the letter of demand, issuing proceedings, obtaining default judgment and basic enforcement steps. You know the cost before you start, and you only pay for the steps actually taken. If one letter of demand produces payment, the bill is the cost of that letter. That makes a lawyer cheaper than an agency for debts you expect to recover, and more predictable for debts you intend to fight for. It also removes the commission layer: if the debt is recovered through court, you are not paying the agency a percentage on top of the legal fees.
What each option can actually do
An agency's toolkit is built around persistence: letters, phone calls, emails, messages and, in some cases, face-to-face contact. That contact campaign can shift a debtor who is avoiding payment but can pay. The conduct of collectors is regulated. The ACCC and ASIC jointly publish the Debt Collection Guideline for Collectors and Creditors, which explains how Commonwealth consumer protection laws, including the Australian Consumer Law, the National Consumer Credit Protection Act 2009 (Cth) and privacy laws, apply to collection activity. It applies to agencies and to creditors collecting their own debts, and ASIC's regulatory guide on the same topic points debtors to guidance on their rights. An agency that oversteps can attract complaints and regulatory attention, and that attention can reach you as the creditor who engaged it, so the behaviour of your agency matters, not just its results.
A lawyer's toolkit is different:
- A letter of demand: a letter on firm letterhead stating the amount owed, the deadline for payment, and the proceedings that will follow if the deadline passes.
- A statutory demand for company debts: under s 459E of the Corporations Act 2001 (Cth), a creditor may serve a demand on a company for a debt that is due and payable and at least the statutory minimum, which is $2,000 unless a higher amount is prescribed by regulation. The demand must be in writing, in the prescribed form, signed by or on behalf of the creditor, and accompanied by an affidavit verifying the debt unless it is a judgment debt. The company then has 21 days to pay, or to secure or compound the debt to the creditor's reasonable satisfaction.
- The presumption of insolvency: if the company has not complied by the end of that period, it is taken to have failed to comply with the demand. A court must then presume the company is insolvent if the failure occurred during or after the three months ending on the day a winding-up application is made, which is why most companies pay rather than face one.
- Court proceedings for anyone: a statement of claim, default judgment if the debtor does not defend, and enforcement such as a garnishee order or writ of execution.
A statutory demand is a genuinely powerful lever, but only if it is done properly. The form, the verification and the service all have to be right, because a company that disputes the debt can apply within the same 21-day period to have the demand set aside, filing a supporting affidavit and serving copies on the creditor. A demand that is set aside does not just fail, it can expose you to the company's costs. This is work for a lawyer, not an agency.
Who owes you the money
The identity of the debtor changes which tools are available and which protections apply.
- Company debtor: the statutory demand route is available, and it is fast. If the company is trading while insolvent, its assets may be dwindling, so speed is a factor in favour of a lawyer who can move from demand to winding-up application quickly.
- Individual debtor: consumer protections can apply. If the debt arises under a regulated credit contract, the National Credit Code applies. A debtor who is, or will be, unable to meet their obligations can give the credit provider a hardship notice under s 72 of the Code. Enforcement proceedings generally cannot begin without a default notice under s 88, and where a current hardship notice has been given, the credit provider must not begin enforcement proceedings unless it has told the debtor it will not change the contract and 14 days have passed since that notice. An agency's collectors must operate within these rules too, and the conduct of collectors is governed by the ACCC and ASIC guideline.
If your debtor is an individual with consumer credit, it is worth having a lawyer map the Code's requirements onto your timeline before you commit to a strategy. The same letters that work on a company can be a compliance problem on a regulated consumer debt.
The clock: limitation periods
A debt is not recoverable forever. In NSW, an action on a simple contract debt must be brought within six years of the cause of action accruing, under s 14 of the Limitation Act 1969 (NSW), and the other states have similar six-year limits. Once the period expires, the right to sue is extinguished, not merely unenforceable.
The trap is that an agency's contact campaign does not stop the clock. The limitation period only stops running when proceedings are commenced, so months of letters and phone calls can burn time you do not have. If the debt is close to the limit, that is a strong argument for a lawyer who can issue proceedings promptly. A written acknowledgement of the debt signed by the debtor, or a payment, can restart the clock under s 54 of the Limitation Act 1969 (NSW), but you should not rely on that happening. Check the age of the debt before you choose anyone, because if the period has already run, no amount of collection effort will bring the claim back.
What you will actually get back in costs
Even when you win, you will not get your legal bill back in full. Courts order costs on a party party basis, assessed against court scales, and in lower courts the maximum recoverable amount is limited. The costs a debtor is ordered to pay are a contribution, not a refund, and interest and costs orders rarely cover the full commercial rates your own lawyer charges.
This matters twice over in the agency comparison. If an agency recovers the debt without court action, you pay commission. If it recovers through court, you pay the agency's commission and the legal fees of the law firm it briefed, on top of whatever costs the debtor is ordered to pay. A lawyer who handles the whole engagement avoids the double layer, and a fixed fee agreed upfront lets you model the worst case before you commit. Whatever route you take, budget for recovering less than the full cost of getting there.
How an Artificer Legal lawyer helps you make the call
An Artificer Legal practitioner starts with the questions that determine whether recovery is worth pursuing at all. Is the debt enforceable? We check the contract or agreement, the invoices, the limitation period, and the defences a debtor could raise. Is there a genuine dispute? A company that disputes a debt can apply to set aside a statutory demand, so we assess the dispute risk before relying on that lever. Can the debtor pay? We look at what is known about the debtor's position and what enforcement would actually produce if you win. Do consumer protections apply? If the debtor is an individual and the debt is regulated consumer credit, we map the National Credit Code requirements onto the timeline.
From there we stress-test the downside. We model what the proceedings would cost against the likely recovery, what the costs limits mean for your outlay, and which enforcement options are realistic. If you are leaning toward an agency, we can review its terms before you sign, so the commission structure and any referral to its lawyers is clear in writing. If you choose the lawyer route, we draft the letter of demand, prepare and serve a statutory demand in the prescribed form with a proper verifying affidavit, and run the matter through judgment and enforcement.
Start with whether you would actually sue
The decision that costs the most to get right is not which provider to hire. It is whether you are prepared to sue if the debtor does not pay. Answer that honestly first and the provider choice mostly resolves itself. If you would not sue, a no recovery, no fee agency gives you recovery effort at zero downside, which is the rational choice for a debt with slim prospects. If you would sue, a lawyer from the start is usually cheaper than an agency plus the lawyer the agency eventually needs, and it protects the claim against the limitation clock while it works.
To summarise: agencies work on commission with no recovery, no fee, and suit debts you expect little from; lawyers charge fixed fees for the work actually done and suit debts you intend to pursue, including through statutory demands for company debts and court proceedings for anyone. Consumer debts owed by individuals carry National Credit Code protections that an agency's collectors must respect, and collection conduct is regulated under the ACCC and ASIC guideline. Court costs are capped, so budget for a partial recovery of your legal fees. And the six-year limitation period can decide the answer by itself, so check the age of the debt before you engage anyone.