Copyright © 1994 by the Commercial Law League of America


The Commercial Law League of America has prepared for distribution to its new members the following material outlining and explaining some of the fundamental terms and principles of "collections" as practiced by attorneys who concentrate their practices in commercial law and creditors’ rights.

The material contained herein represents explanations and suggestions only. Anything contained herein that is inconsistent with the Code of Professional Responsibility of the American Bar Association or similar code adopted in any state, or which is violative of state or federal law, shall be deemed inoperative.


A collection practice deals with the collection or settlement of claims asserted by one individual or business entity against another. There are two types of claims. A "commercial claim" is an obligation incurred during the course of conducting a business which arises from goods sold or leased, services rendered, or monies loaned for use in the conduct of a business or profession. An "average" commercial claim may be defined for general purposes as $2,000. All other claims are "retail" claims.

Not all commercial accounts are based on open account balances; some claims may be based on lease agreements, security agreements, consignment transactions, guarantees or on almost limitless variations of similar business transactions. It is necessary that the attorney be familiar with the available legal means of effecting collection of such specialized types of claims. This requires specialized knowledge of creditors’ rights, including the areas of sales, secured transactions, negotiable instruments, enforcement of judgments, and civil procedures.


Claims are received from two sources: directly from the creditor-client or from a "forwarder."

A "forwarder," as the agent of the creditor, refers claims to attorneys for collection. A forwarder may be an attorney, a commercial collection agency, or a credit insurance company which acts on behalf of the creditor in the referral of claims for collection. The attorney who receives the claim is a "receiver."

Claims emanating from a forwarder are usually forwarded to an attorney because the debtor is outside of the forwarder’s jurisdiction and the forwarder has been unable to obtain payment. Forwarding is approved by the prior express authorization of the creditor-client for whom the forwarder serves as agent. Thereafter, the creditor becomes the client of the attorney. The forwarder, however, continues as agent, to facilitate the handling of the claim between the receiving attorney and the creditor.

Because forwarders have certain expertise and are relied upon by the creditors, it is the usual practice that all correspondence and contact by the attorney with the creditor be through the forwarder.

The ethical provisions pursuant to which an attorney may properly receive a forwarded claim are set out in Formal Opinion 294 of the American Bar Association’s Committee on Professional Ethics, adopted June 21, 1958; in the "Declaration of Fair Practices of Collection Agencies" adopted February 18, 1968 by the American Bar Association’s National Conference of Lawyers and Collection Agencies; and in the "Uniform Authorization Form" and "Uniform Forwarding Contract," also adopted by the Conference February 21, 1970. As all commercial attorneys know, their conduct should be consistent with the highest ethical standards of the legal profession.


The fees charged for the collection of claims may differ from client to client and from law office to law office. There are also various types of fee arrangements which may be established.

A "commission" is the compensation payable by a creditor and earned by a receiver for services rendered in effecting collection of a claim. It is normally contingent and computed as a percentage of the sum collected.

A "retainer" is a sum of money paid in advance to retain the services of an attorney and should be taken into account in determining the ultimate fee to be charged for services rendered and results obtained.

In all cases in which a claim has been forwarded to a receiver, if payment is not received after initial demand by the receiver, the receiver may request in advance a reasonable non-contingent "administrative fee."

A "suit fee" is a fee payable to the receiver, in addition to the commission, for legal services rendered by the receiver for the creditor involving court action in connection with the prosecution of a claim. The "suit fee" is intended to apply to the handling of the litigation, including post-judgment proceedings, except that an attorney may request additional compensation for conducting an examination under oath of a judgment debtor supplementary to judgment. Defense of a counterclaim is considered to be a separate action, generally handled under a separate fee arrangement. The authorization for suit does not necessarily imply the authorization to defend a counterclaim. A specific authorization and fee arrangement should be discussed at the first hint of a counterclaim.

The amount of the suit fee is a matter of contract between the receiver and the creditor, as is the question of whether the suit fee is to be contingent or non-contingent, or partly contingent and partly non-contingent. A suit fee, if earned, is payable in addition to commissions. It belongs exclusively to the receiver unless there is a division of service and responsibility between the receiver and an attorney forwarder. The suit fee agreement preferably should be entered into before suit is commenced, and the fee should be commensurate with the services rendered, the amount involved, and the results accomplished.

The mere authorization to commence suit does not entitle the receiver to charge a suit fee, and a suit fee is not earned until suit has actually been commenced by the filing of the requisite papers in court or by their delivery, as the practice may be, to a process server, constable or other properly constituted authority, for service on the defendant. The mere preparation for suit is not sufficient to justify the charging of a suit fee, but neither is it actually necessary to serve the defendant or recover a judgment against him.

Estimated costs of the lawsuit are submitted in advance by the attorney to be paid or guaranteed by the client. Court costs are the obligation of the client and as is commonly known, the attorney is prohibited from assuming the cost and expense of litigation.

Good practice dictates that if a request is made for an advancement against fees and costs, a clear differentiation be made as to the portion of the advancement applicable to each.

"Court costs" include, but are not limited to: sums required to be deposited for filing an action; fees paid for the services of process; and witness fees. Other out-of-pocket costs should be first approved by the client before they are expended. Unless otherwise agreed by the client, telephone calls, skip tracing investigation, postage and expenses for the duplication of material are considered normal office operating expenses absorbed by the receiving attorney. At no time should a receiving attorney incur unusual out-of-pocket expenses without the creditor’s approval.

When a claim has been put into litigation and it is necessary for the receiver to attend a trial or arbitration hearing, the receiver may charge a reasonable "trial fee" in addition to his or her normal suit fee if notice of the possibility of such additional fee has been given in the suit fee requirements letter.


A "forwarding contract" is the agreement entered into between the forwarder, as the agent of the creditor and with the creditor’s consent, and the receiver; specifying among other things, the agreed commission to be paid as the receiver’s compensation for collecting the claim. It is recommended that the payment of any anticipated expenses be agreed upon in advance so as to avoid a later misunderstanding.


A Law List contains the names and addresses of selected attorneys who are willing and able to accept and service collection claims. The attorney pays for the listing and may maintain such listings in one or more Law Lists.

Law Lists are a recognized medium for the selection of local attorneys by forwarders. The listing is intended to signify that the local attorney is willing to receive collection claims, understands typical and competitive fee arrangements and is competent to perform legal services in a professional manner. Through the medium of the Law Lists, local attorneys are contracted by forwarders to undertake collection matters in their local areas. When a claim is forwarded over a Law List, both the creditor and the forwarder may be protected by a bond in case the receiving attorney fails to properly remit proceeds from a collection.

Another important function of the Law List is to maintain an appropriate working relationship between a forwarder and a receiver, as well as to act as arbitrator, as requested, when there is a dispute between a forwarder and a receiver.

Additional information concerning each list may be obtained directly from the Law List publisher.


Every receiving attorney should have an established procedure for the handling of claims.

The Code of Professional Responsibility adopted in each state usually requires that the attorney assume ultimate responsibility for supervision and review of forwarded matters in order to successfully represent the creditor. Every claim forwarded to a receiver should be accompanied by available information regarding the creditor and debtor, the contract or agreement on which the claim is based, credit information, and details of any known dispute. Additional information may be requested of the creditor when needed. Most accounts forwarded are for past due balances, and original documents are usually not necessary.

There are certain fundamental procedures that should be followed by every attorney accepting claims for collection. The claim should be indexed for a determination as to the existence of conflicts of interest such as where a claim may be received against a client of the attorney. If such a conflict is found, the attorney should immediately advise the forwarder that he is unwilling or unable to accept employment, or if he is willing, he is required to make disclosure of such conflict both to the forwarder and to his client, both of whom must not object. A debtor file index should also be maintained to disclose past or present claims against the debtor.


A number of states, as well as the federal government have adopted laws and regulations concerning the collection of claims. These acts generally relate to "consumer" or "retail" claims, but a review of the applicable regulations in each jurisdiction, with special attention to the Federal Fair Debt Collection Practices Act, is advisable prior to undertaking collection matters and establishing procedures for their handling.


A claim should be acknowledged on the day it is received in order to assure the forwarder that the item has been accepted for collection. Failure or delay in acknowledging the claim may bring into question the receiver’s right to compensation for payments received prior to acknowledgment. Once a claim is acknowledged and demand has been made upon the debtor, the receiver is entitled to commissions whether the payment is sent to the receiver, the forwarder, or the client directly.



After the claim has been indexed and a file opened, a demand letter is sent to the debtor informing him of the attorney’s employment to collect the account. Concurrently with or immediately following this step, the attorney should contact the debtor by telephone to request payment in full or determine the debtor’s intent to pay.

Sometimes in addition to the telephone call, it may be feasible and desirable for someone from the attorney’s office to personally call on the debtor for collection of the claim and for an on-site inspection of the business and assets (inventory, fixtures, equipment, machinery and motor vehicles). If payment is not obtained, this visit will help the attorney determine the feasibility of legal action and may guide the client with respect to the outlay of court costs and suit fees if suit is recommended.


If the debtor claims a dispute, all of the facts should be ascertained in detail and sent to the forwarder for further advice and instructions. If there is only a partial dispute, it is considered good practice to request that the undisputed portion of the account be paid promptly. Failure of the debtor to pay the uncontested amount may indicate financial difficulties.

In the event the debtor insists upon a return of all or a portion of the merchandise received, it is necessary to determine from the forwarder if the return of the merchandise will be accepted by the creditor and, if so, what form of credit will be granted.

When a client allows a credit for the return of merchandise, the receiver may be expected to reduce the fee below that normally earned on money collections. This situation should be covered by the forwarding contract.


A commercial attorney should be familiar with the applicable provisions of the Uniform Commercial Code and his particular state’s adaptation of same relating to the transaction.

If payment is not immediately arranged, an attempt should be made to obtain a written acknowledgment of the obligation from the debtor. If suit is anticipated, the initial interview should be conducted in a fashion that will elicit as much of the following information as possible:

1. Legal composition and names of principals;

2. Confirm address (or addresses) at which service may be made;

3. Banking connection;

4. It may be important to determine, in advance, if there are security interests or other encumbrances.

If payment is not immediately made, or is delayed, it is important to determine the present financial condition of the debtor. For example, are other creditors also pressing for payment? Is the debtor just temporarily short of cash and if so, determine the reason therefor. Data that might be considered in justification of any extension or to ultimately assist in enforcing collection of a judgment may be any of the following: Does the debtor own real estate, and if so, is it subject to mortgages or other encumbrances? Inquire as to the debtor’s assets, including automobiles, inventory, equipment, fixtures or accounts receivable and whether they have been pledged as collateral to secure any obligation. Are there security agreements, tax liens, pending suits, or judgments? The answers to these questions help in determining the basis for granting an extension or for recommending suit.

The maintenance of a friendly atmosphere during this initial conversation is highly desirable and recommended. The purpose of the interview is to collect the debt, not to prove a point. It has generally been experienced that it is difficult to collect from a debtor by attempting to prove that he is guilty of wrongdoing.

When discussing a schedule of payments with the debtor, the attorney should always attempt to secure definite amounts and specific payment dates. When possible an attempt should be made to obtain postdated checks (if lawful in the particular community) or a promissory note. Remember, however, generally the only authorization received from the client at the time of the initial interview with the Debtor is to accept payment in full. There is no inherent right or implied authority to accept part payment no matter how large such payment may be. With experience, an attorney will learn under what circumstances and the kind of payment schedules to demand of debtors and to recommend to clients. In all instances where payment schedules are proposed, a recommendation should be made to the client based on the financial facts and figures submitted by the debtor and developed by the attorney. The attorney should be careful in conversation with the debtor, indicating that he will recommend, but is unable to guarantee, that his client will accept any specific payment arrangement. If the debtor indicates that he can pay only a portion of the claim at the present time, the attorney should attempt to determine the source of the funds from which the balance will be paid. The source of the funds may be important because if the debt is not paid amicably, counsel may find this information helpful in order to reach such assets on a prejudgment attachment (where permitted) or a levy of execution or garnishment after the recovery of a judgment.

As a general rule, it is important to confirm an oral agreement with the debtor in writing as soon as practicable. It is good practice that a copy of such a letter be sent to the forwarder.

After contact with the debtor, it is sometimes advisable for the attorney to verify all facts. Sources available to check out a claim include the City Clerk’s Offices, Registries of Deeds and Probate, Registry of Motor Vehicles’ reports, the Secretary of State (for corporate information) and various licensing agencies, bureaus and trade associations.

All offers of payment schedules or compromise by a debtor are subject to the ultimate approval and acceptance by the client and should be submitted promptly and in writing to the forwarder. On large or more critical matters telephone submission with written confirmation is suggested.



After debtor contact, it is incumbent upon the attorney to furnish the forwarder with a report on the claim, advising the prospects for collection. In evaluating the claim, the attorney should report all pertinent facts uncovered and also review and advise as to any past experience with the debtor.

If arrangement for payment has not been made, the report should include a recommendation, if possible, as to any extension, or alternatively, the institution of suit. If legal action is recommended, the attorney should set forth requirements for court costs and suit fees if circumstances require a retainer. The economics (amount of claim) should be considered in the recommendation.

No lawsuit can be instituted without the client’s prior authorization. The mere forwarding of a claim to an attorney for collection does not imply the right to bring suit.

If it is determined after investigation that the account is uncollectible, the attorney should return the claim promptly to the forwarder together with a complete report.

It should be remembered that even if the attorney is doing a conscientious and efficient job, the handling of the claim will appear to be a failure in the eyes of the forwarder and the client if the results and recommendations are not reported promptly to the forwarder. All reports should be submitted in duplicate so that the forwarder may send a copy of the letter to the client.


Often payments by a debtor are made by check. Each check received should be examined carefully. The check should be dated currently and not postdated (unless there is an agreement and approval by the client to accept a postdated check and it is lawful in the particular community).

It is essential to determine that the amount of the check conforms to the agreement with the debtor and that the numerals match the written figure. Care should be taken as to the proper payee. The debtor’s signature and any other special endorsements that the debtor may have added either on the front or back of the instrument should be examined. If a special or restrictive endorsement has been added, it is imperative that counsel be satisfied with respect to its legal effect, and as to the manner in which the instrument should be negotiated, if at all.

It is considered good practice to make a record of every check received and post the debtor’s bank information on the front of the file. This procedure offers the advantage of maintaining an entire history of the check instantly, including the name of the drawee bank and account number. At a later date, the attorney may wish to refer to the bank information for the purpose of ascertaining the bank on which it was drawn, the account number, whether it was a joint account with the debtor’s spouse or another individual, whether it was a business or corporate account and other notations that might have appeared on the instrument.


All payments received from a debtor must be deposited to a trust account established by the attorney. Although earned fees and expended costs can be withdrawn from such account, the funds on deposit are the property of the client and held by the attorney as a fiduciary for the creditor. Individual remittances should be made as promptly as possible after providing enough time for clearance of each check. A receiver shall account for and remit on principal, costs which are not commissionable, interest, statutory fees (where permitted), and contractual fees (where permitted).


What can a lawyer recommend to the debtor and the client short of instituting suit but which may provide some additional protection to the client while the claim is being liquidated?

The attorney can suggest that the debtor provide the creditor with a series of postdated checks (if lawful in the particular community) or an installment promissory note. Depending on the amount involved, a schedule of payments can be secured by personal endorsement, guaranty, a real estate mortgage, or a security interest in personal property including a lien on motor vehicles perfected by a title certificate. Sometimes the attorney may suggest or insist upon an assignment of life insurance or require that the creditor be named as a payee of casualty insurance.

Under certain circumstances it may be desirable to suggest an assignment of accounts receivable and/or other contracts, where permissible, or an assignment of proceeds to be received from the settlement of any pending contract or tort action. It is also advisable to request that the principals of a corporate debtor execute Personal Guaranties or Confessions of Judgment to be held in escrow.

If an interest in real or personal property is taken to secure the debt, the instrument, after execution, must be promptly recorded or a financing statement filed, according to local law to perfect the interest against subsequent transferees. Accordingly, it is incumbent on the attorney to be well versed in secured transactions and the perfection thereof.

These several methods of attempting to secure a client’s claim are in no way mutually exclusively and can be used in various combinations, depending upon the interests of clients, the debtor’s financial circumstances, and the willingness of the debtor to cooperate in paying the debt.


To profitably service accounts attorneys must maintain a system for the follow-up of claims. This is known as a diary or tickler system. This system is designed to permit the retrieval of a file on a specified date for further action or review.

An attorney must keep track of his files on a daily basis. Requests by forwarders for status reports may be avoided by keeping them informed.

One of the attorney’s fundamental responsibilities is to keep the client informed as to the status of the claim. Clients are always interested in the status of their case and must be kept advised of any progress or results. As a general rule, the attorney should report timely to the forwarder, including facts that may not seem very significant to the client. Facts such as payment, promises of payments, reason for nonpayment, inability to contact the debtor and the return of mail "unclaimed" or "moved" are significant items on which a report can be based.

The attorney should not hesitate at any time to request additional information from the client when needed. The client may have available such data as a financial statement or credit report that was not included when the claim was originally placed for collection.


When reporting to a forwarder, it is advisable that the report be sent in duplicate so that the forwarder may transmit a copy of counsel’s letter to the client.

When sending a report to a client through a forwarder, it is a good practice to request the client advance their file for a definite fixed period of time. Requests for advance datings should be realistic, keeping in mind further developments which may be anticipated and the legitimate interests of the creditor to be kept informed. It is advisable that counsel send the next report to the forwarder before the time period expires.

If a report is not sent timely to the forwarder, the attorney can expect to receive what is known as a "prompt." Counsel should strive to avoid being prompted, and when this occurs, it is important that the matter be given immediate attention. Obviously, if the attorney is unable to furnish a full report at once, the request should at least be acknowledged with whatever current information is available (or obtainable) and see that a complete report follows within a stated period of time. An uncollectible claim should be promptly closed and returned with reasons for sending it back.

To minimize the costs of handling small claims, a receiver can be expected to make demand on the debtor in an effort to obtain payment, but the receiver need report only every 90 days unless documentation is needed, payment is made, merchandise is offered for return, the account is closed, or requested by the forwarder. On claims in litigation, it is recommended that a receiver confirm that suit is filed, report each significant development or event in the course of the litigation, and give realistic file datings based on local practice.


Among the frequent roadblocks to collection of the client’s claim are the various forms of insolvency proceedings. Some of the more common proceedings are bankruptcy (both liquidation and reorganization), assignments for the benefit of creditors, trust mortgages and State Court receiverships.

In all insolvency proceedings, there are methods of protecting the rights and interests of a creditor or, at least, of avoiding a further erosion of such rights. For example, it may be by the filing of an assent to a trust mortgage indenture or assignment for the benefit of creditors (or a refusal to assent, depending on the circumstances), or the filing of a Proof of Claim in a bankruptcy proceeding.

Bankruptcy proceedings have become a sub-specialty within commercial law. All commercial lawyers must have some familiarity with the Bankruptcy Code and Rules to adequately represent commercial creditors.

There are specific time limitations for the filing of documents required to share in the benefits of a particular insolvency proceeding. Care should be exercised in the diarying and following of such matters to ensure that the filing is completed before the filing deadline.

There are situations in which it may not be desirable for a particular creditor to file a Proof of Claim in a bankruptcy proceeding or assent to a trust mortgage indenture or the assignment for the benefit of creditors. Because insolvency proceedings deal with substantive law requiring specialized knowledge, each case should be judged on its own merits before filing any Proof of Claim or assent document.


In conclusion, it is apparent that the practice of commercial law is one of specialization. The competent practitioner in the field of commercial law develops a broad spectrum of knowledge in diverse areas of substantive law and in dealing with the business creditor and debtor public. He is obliged to maintain a well organized and efficient commercial law office to serve the interests of his clients, which in turn can lead to an interesting and profitable career. Practitioners who qualify may be certified as specialists by the CLLA Academy of Commercial and Bankruptcy Law Specialists.

The relationship among creditors, commercial collection agencies, receiving attorneys and law lists may sometimes give rise to practical problems that may be resolved through the Operative Guides adopted by the Commercial Law League of America. The League maintains a voluntary system of arbitration to settle disputes between its members, including disputes between forwarders and receivers concerning fees. This assures that the process of servicing commercial claims operates in the best interests of creditors, forwarders and receivers doing business throughout the country and the world.

It is helpful for all members of the Commercial Law League of America to be familiar with the League’s Operative Guides. Upon request, the League will furnish any member with a copy of the Operative Guides, additional information on the several aspects of the commercial practice, provide sample forms, and refer inquiries to its members best qualified to respond.

Attending CLLA Annual Conventions, as well as Regional Meetings and participating in workshops, conferences and "rap" sessions, is another way for forwarders and receivers to improve their skills, abilities, competence and success.

The CLLA is an association of members who for over 100 years have shared a mutual interest in our economy and in the practice of commercial law having as its stated purposes.

"To promote uniformity of legislation in matters affecting commercial law;

To evaluate the standards and improve the practice of commercial law;

To encourage an honorable course of dealing among its members and in the profession at large;

To foster among its members a feeling of fraternity and mutual confidence."

It is in dedication to these objectives that this publication has been prepared and is being distributed.

The Commercial Law League of America does not render legal services. This publication is designed solely to help attorneys maintain their professional competence. In dealing with specific legal matters, the attorney using a CLLA publication should research original sources of authority, and the CLLA disclaims any liability in issuing this publication.