Q&A: Small claims vs. collection agencies

Which works best when clients don't pay?
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Mar 01, 2010

When pet owners don't pay their bills, you could take them to small claims court. But this is time consuming. And even if you win, you'll probably still have to hire an attorney to help you actually recover the money, says Karl Salszieder, DVM, JD, management consultant at Salszieder Consulting and Legal Services in Kelso, Wash.

Enlisting a collection agency is another option. These organizations work because they have the attorneys and staff to put forth the effort needed to secure payment. But after you pay their fees—usually upwards of 50 percent of the original amount—the funds you do recover won't even vaguely resemble the client's original bill, Dr. Salszieder says.

For these reasons, Dr. Salszieder usually recommends taking matters into your own hands, while treading gently. "It's not a very good idea to do much other than a friendly phone call," he says. Why? There are stringent consumer protection laws that require you to be very consistent in procedures with all your credit clients. So you must write a payment policy for your practice and provide credit clients with written notice of any late fees you'll charge, when these fees apply, dates of service, and any interest accrued. Complying with these rules is difficult, and failing to do so might cost you even more money in legal feels or payouts, Dr. Salszieder says.

The best thing to do is to avoid the situation in the first place by never billing clients or setting up charge accounts. Some surveys show that only 85 percent of clients will pay their bills, Dr. Salszieder says. And from a practice valuation standpoint, any bills that are more than 90 days overdue are worth only about 10 percent of face value because of the low chance of recovering that money, he says. So the next time a client can't pay, suggest a third-party payment plan or offer angel funds—or prepare to make a few friendly phone calls and possibly take a loss.