• Noah Johnson

Debt Collection Agency vs. Small Claims Court

When attempting to collect a debt, you have two options: hire a debt collection agency or take your debtor to small claims court. The question is, which is the best option for you? So, let's look at how a debt collection agency differs from a small claims court.

Small Claims Court vs. Hiring a Debt Collection Agency

Debt Collection Agency



The most common way to collect unpaid invoices are by hiring a collection agency. Having a debt collection agency handle your collection needs will relieve you of the stress and increase your chances of getting paid.

Professional debt collectors such as Fair Capital know how to get debtors to pay their debts. You should also expect your debtor to take things more seriously once they are contacted by a debt collector.


Generally, collection agencies charge a percentage of the amount collected. The rate typically ranges from 20 to 40 percent.


Leave the work to others

Many people find the small claims process and court proceedings complicated and stressful. As a result, they prefer to outsource the work to a reliable debt collection agency to save time and effort.

Only pay for results

Collection agencies charging on a contingency basis take no commission unless they successfully collect your debt.

Credit reporting

The ability to report to a debtor to the credit reporting agencies makes debt collection agencies very effective. It is not uncommon for debtors to pay their debt solely because it negatively impacts their credit score.

Small Claims



Another option for business owners to collect unpaid debts is filing a small claims lawsuit. Getting your paperwork filed at the local courthouse is not very complicated and doesn't require an attorney.


When you file a lawsuit in small claims court, you will usually have to pay a filing fee. Depending on the state, the fee can range from $35 to $150. Some states base their filing fees on the amount of outstanding debt.


Less expensive

Suppose the collection agency successfully gets your debtor to pay up. In that case, you'll have to pay a substantial amount - typically more than what you would pay if you took your case to small claims court.

No minimum

Small claims court does not require a minimum amount of debt, so you can technically file a lawsuit even if you are owed just $25. (Although the filing fee would not make it worthwhile). Nevertheless, most courts do have a maximum.


No enforcement

Even after winning a small claims proceeding, you should not expect the court to take any action against your debtor. It is estimated that approximately 80% of judgments in the United States are never collected. Ideally, before filing a small claim, one should have a strategy on how to enforce the judgment once it has been granted. Otherwise, you may end up receiving the money judgment.


Depending on your state, you can't sue for more than a certain amount in small claims. A corporation or individual may also be limited in how many cases they can file in a calendar year or month.