On 06 December 2018, the Solicitors Regulation Authority will introduce new rulings of price transparency for certain services, including debt recovery, for any values under £100,000.
‘Debt recovery’ is a very broad term and an extremely crowded market, with suppliers offering various levels of competency, service, approach and success. Some firms are more suited to handling one-off consumer collection debt matters, whereas, like us, others are highly skilled in effectively managing the successful recovery of regular volume B2B debts.
Pricing transparency is certainly a very welcome concept in theory, but is the new rule fit for purpose and could it do more harm than good by trying to compare apples with oranges?
What is the new price transparency rule?
The rule states that solicitors must provide the following debt recovery price information on their websites:
- The total cost of the service, or average cost where this is not practicable
- The charging basis (i.e. fixed fees, hourly rate etc)
- The cost of likely disbursements
Why is the new rule problematic?
Whilst firms have been told that they must display pricing information, there is no uniformity in how this must be done. The transparency rules do not stipulate that specific pricing models are to be adopted.
If all solicitors charged an ‘hourly rate’ for their debt recovery services, then the new Solicitors Regulation Authority rules would be more meaningful. Credit managers may even find themselves being offered a cuddly meerkat for comparing suppliers in the market. However, many of the leading debt recovery law firms now offer a range of flexible pricing models such as fixed fee or no-recovery-no-fee arrangements for bulk work.
How can you accurately compare prices when you are not comparing like for like?
Publishing one set of fees that apply to all circumstances is encouraging a ‘sausage factory’ mentality to debt recovery, taking a ‘one-size-fits-all’ approach. We have found that this is something that senior credit professionals have been keen to move away from in recent years, knowing that a tailored approach, specific to their industry and business requirements, will yield a higher recovery rate and more cost-effective collections overall.
Whilst the price transparency rules are, therefore, clearly aimed at smaller businesses with one-off bad debts, the Solicitors Regulation Authority takes no account of the impracticality of these rules for recovering regular bulk debts for large national firms.
The intention of the new rules is that prospective clients will be able to make informed supplier choices without having to engage with them. However, any successful debt recovery relationship requires engagement between the credit manager and the supplier, taking the time to understand your business, your order-to-cash process, your terms and conditions and any common payment disputes (at a minimum) before being able to propose an appropriate recovery process and a suitable fee structure. An generic price will inevitably mean a generic service. An average price will inevitably involve a range of prices.
What about debt collection agencies?
The Solicitors Regulation Authority transparency rules only apply to solicitors and not to debt collection agencies. The irony is that most debt collection agencies provide a more formulaic ‘pre-legal’ debt collection service where the spirit of the new Solicitors Regulation Authority transparency rules may actually have some relevance. Unlike solicitors, debt collection agencies cannot issue court proceedings against debtors and avoid the complex requirement of having to display fees that cover every possible scenario of the entire end-to-end debt recovery process.
What about the quality of service?
Price alone is not always the key factor in any supplier decision: brand reputation is at stake during the debt recovery process.
The age-old saying about ‘paying peanuts and getting monkeys’ has never been more appropriate. In this age of social media and general visibility, do you really want to put your company’s reputation in the hands of our distant hairy ancestors?
The ‘one-size-fits-all’ approach to debt recovery may get it right on occasions, but a tailored approach will get it right for your business every time.
The new Solicitors Regulation Authority rules have good intentions but the reality is that most law firms handling bulk debt recovery will simply view this requirement as another necessary compliance step.
The debt recovery prices that you will start to see displayed online are likely to be there simply to ‘tick a box’ rather than being a transparent representation of the actual fees that are applied in practice.
Whilst the Solicitors Regulation Authority look to reduce the amount of engagement needed to access fees from debt recovery law firms, the key to appropriate and transparent fees is actually increased engagement.
Ultimately, whatever information on pricing appears online, increased engagement with the right debt recovery partner will ensure transparency of fees and the right level of service for your business.
For more information, please contact us on 01332 226 474 or email: .