Can you recover your debt collection costs?
The collection bill is not automatically the debt
A wholesaler hires a collection service after several reminders fail. The service charges a fee, and the wholesaler adds that amount to the customer's balance. The customer now challenges both the fee and the original account. Before insisting on the larger total, the wholesaler needs to check whether the customer agreed to pay those costs or another lawful basis applies.
Read the accepted recovery terms
Find the terms that applied when credit was provided. Check whether they address recovery costs and what they actually cover. Do not assume a clause on a later statement was accepted with the original order.
The wording, enforceability and reasonableness of a claimed cost can require legal assessment. Business.gov.au recommends clear contractual terms. A broadly worded clause is not a reason to add every internal administrative expense without checking whether it falls within the agreement.
Separate each type of expense
List collection fees, legal advice, filing charges and staff time separately. Keep invoices and the calculation supporting the claimed amounts. Your agreement with a collector establishes what you owe the collector; it does not automatically establish what the debtor owes you.
If costs are sought through court proceedings, ask the adviser to explain the applicable rules and the difference between actual expenditure and recoverable costs. Winning a claim should not be described as a guarantee that every dollar spent will be reimbursed.
Keep the principal claim clear
Show the original balance and additional claims on separate lines. If a fee is challenged, identify the basis relied on rather than allowing the dispute to obscure the underlying invoice. Correct any unsupported addition promptly.
A demand that overstates the account may make settlement harder. It can also give the customer a legitimate reason to seek clarification. Accuracy is more useful than a larger-looking number when the objective is collecting money.
Budget using your own downside
Before instructing recovery work, ask what you will pay if nothing is recovered and what approvals are needed for additional expense. Compare the likely net recovery with the debt, evidence and debtor's position.
If you negotiate a settlement, say whether it includes interest and costs as well as principal. Do not leave the treatment of the collection bill until after the payment arrives. A clear agreement prevents a successful recovery from becoming another argument about the balance.
Identify which extra costs are supportable
Locate the accepted clause or obtain advice on another recovery-cost basis.
Separate the principal, interest and each proposed cost.
Budget for amounts you may have to bear even if the customer does not reimburse them.
Call CRP today about a proportionate debt recovery plan and its likely costs.