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Knowledge & Insight

DEBT COLLECTION FEES – WHAT YOU NEED TO KNOW

You have a small business, your customer is owing you money and your not able to get them to pay it on time or at all. So, what do you do? You enlist the help of a trusted debt collection agent of course. However, this is going to cost you money, generally in the form of commission charges or recovery fees. Most logical thing to do? Add the charge of the commission or fees to your customer’s outstanding invoice, correct? Not necessarily! Despite popular belief that debt collection agents are dodgy and ruthless, the activities of debt collectors are governed by the Australian Consumer Law and Fair Trading Act and the Australian Competition and Consumer Commission. This essentially mean that debt collectors are prohibited from recovering fees from a debtor unless a contract exists between the parties allowing for this to occur. Generally, for debt collection fees to be legally binding, there must be a written agreement in effect. You may be able to charge the debtor the debt collection costs if it is specified in your terms and conditions or credit application.

When written clearly and explained well, collection fees serve as a way for you to lessen the cost of getting payment – measured in staff time, letters, phone calls and more. Furthermore, they can motivate your customers to pay before an extra cost is added to their current amount owed to you.

Before adding a collection fee to your outstanding invoices, consider the following:

  • Consult a debt collection agent or your attorney.
  • Write clear terms & conditions that clients read, understand and sign or refer to as part of doing business. You only need to add a couple of lines with the correct wording. Most agencies can assist you with this.
  • The percentage that you add to the outstanding invoice, can be no higher than what your debt collection agent charges. If your agent charges 20 percent you can charge no more than that to clients.
  • Expect collection fees to be the cost of doing business. It’s not likely that collection fees will do much more than pay the cost of collection.

Adding collection fees to your customer’s outstanding invoices, can be effective in getting them to pay. However, if you don’t have the right contract or terms in place to add the fees, don’t be discouraged. You can still absolutely get the help of a trusted debt collection agent to collect payment on your behalf. Sometimes, it makes more business sense for you to leave the collection of your outstanding invoices to an expert, while you focus on your main business activities.

For more tips and information or if you require help to get paid, contact me directly below or via Marlé Ambrose website.
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