To be able to recover your collection costs from a commercial debtor in the United States, you must have a valid signed agreement whereby the debtor has agreed specifically that the costs of collection are recoverable.
A version of this clause may look something like this:
“The customer shall pay all solicitor's fees and expenses, and all legal costs as between solicitor and his own client on a full indemnity basis, as well as an allowance for the time, work and expenses of the Credit Grantor, or of any agent, solicitor or employee of the Credit Grantor, for any purpose herein provided for and whether such sums are advanced or incurred with the knowledge, consent, concurrence or acquiescence of the Customer or otherwise, together with interest thereon at the rate provided for herein, shall be repayable to the Credit Grantor on demand, or if not demanded then with the next ensuing installment payable to the Credit Grantor.”
Where these costs are recoverable, often the courts decline to add the total amount of the collection costs and/or contingent fees in the event you decide to sue your customer.
Funds paid for court filing fees, service of documents, etc. are legally recoverable are added to the final judgment amount.
The Reality of Recovering Collection Costs
Notwithstanding the legalities, what are the chances of recovering collection costs from your slow-paying customer?
As with any business transaction, if you have a signed agreement where the customer has agreed to your terms and conditions, the chances are more favorable than if you do not. Sometimes it may take court action to facilitate the recovery of collection fees. It is only possible to enforce a legal contract through the courts. Reputable and ethical collection professionals will not visit a debtors business premises to force payment of the collection fees.
At AAB, our approach is to recover all principal and interest charges on an amicable basis. If the creditors agreement with its customer contains the required clauses to hold the debtor company liable for collection fees, then we will work to obtain those expenses as well.
Should your customer balk at paying these fees, they may be used as a negotiating tool to encourage prompt remittance of the principal amount of the debt.
When pressed, some debtors will agree to pay the interest expense, especially if they want to work with the creditor again in the future; however if there is no signed agreement to pay interest or collection expenses, the debtor will not pay them.