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Recovery costs for late payment

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7 years 4 weeks ago #954 by Littlemac
A debt agency was asked to recover a debt which had 30 days terms on the invoices issued. Costs were added to the debt in the sum of £900. The debtor eventually paid the original debt plus some interest charges.

However, the debtor is refusing to pay the costs. The recovery agency say they cannot legally pursue the debtor for these charges as this wasn't detailed in our Contract. The Contract did however say that payment was under the terms of the invoices (30 days)and all correspondence about late payment notified the debtor that our company would be claiming the costs from them.

Our company has had to pay these recovery charges which seems totally unfair.

Can the debtor now be pursued for the charges? The legislation is confusing regarding this issue.

If not, then how are small companies like ours protected from these people?

Thank you.
June Davison

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7 years 3 weeks ago #956 by David J
Hello June

I don't know the size of the debt that you were pressing but £900.00 seems and awful lot of money. Did you have to pay this after the debtor paid or before?

After 16th March 2013 was a new ruling added to the legislation allowing you to claim extra recovery costs (such as a DCA or a solicitor) to your statutory entitlement to interest and basic compensation. If your claim was before this date then the DCA's fees would not enforceable. Did they make this quite clear to you?

Getting a good debt recovery agency is an important decision. They seem to be popping up everywhere. I'm not saying your choice was bad but all costs, chances of success etc. should have been made clear to you right from the start.

In the next few days I will be adding an article about choosing a good debt recovery agency. I will add the link to this post when the article is online.

Regards

David

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7 years 3 weeks ago #961 by Littlemac
Hi David

Many thanks for your reply.

As the invoices, which totaled almost £8,773.20 (including VAT) were dated 6 March 2013, it would appear from your comments with regard to the new legislation that we are not legally entitled to pursue the debtor for collection charges. We did add on some interest, which was eventually paid along with the original debt, but have not as yet sent a demand for statutory compensation, which I understand would only be £70!! Perhaps you could clarify whether this needs to be demanded in the form of a letter or an invoice?

This is the first time we've used a collection agency and in fairness to them, their Contract did state that they would attempt, but could not guarantee, collection of their costs (15% of monies collected, payable on each amount collected). What has actually caused some misunderstanding is that at the initial meeting with my Son, their representative implied that as all our paperwork (except the Contract), pointed out that failure to pay would result in a collection agent being instructed and/or court proceedings being commenced, then we had a fair case for recovering their costs.

This clearly has not been the case. The collection agency have stated that they cannot legally pursue the debtor (who has now paid off the original debt) for their costs as this was NOT outlined in the Terms & Conditions of our Contract with them. I assume that this is actually the case?

We have now added a clause to our Contract which we hope will cover us if this situation ever arises again.

Thus far we have paid the collection agents a one-off lifetime membership fee of £700 (inc. VAT) together with £900 recovery costs. It looks to me that as the debtor refused to pay these costs, he knew how to work the system well enough to be confident he would get away with it. Extremely unfair to a small company who rely heavily on customers paying on time.

I suppose we will now have to put this down to experience and right-off the collection fees.

I would appreciate your further comments.

Regards

June Davison
B & C Building Contractors

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7 years 3 weeks ago #962 by john@termsandconditions.co.uk
Hi June

Sorry to learn of your debt collection issues.

For contracts dated before 16th March 2013 - unless you have a correctly worded clause in your contract terms and conditions where your buyer (debtor) agrees to indemnify you (creditor/seller) against debt recovery costs and solicitors costs on an 'own client' basis, then all you can legitimately claim from your debtor is the original debt plus late payment interest and fixed costs as detailed in the Late Payment of Commercial Debts (Interest) Act 1998. Your debt collection agency has mistakenly attempted to claim full collection costs. They should have kept their powder dry and only claim the original invoice/s plus statutory late payment interest and the statutory fixed costs. I would say that onus is on your debt collection company to claim the extra statutory costs rather than claiming 'job done'.

For contracts dated after 16th March 2013 - the position is now that a business creditor has a new statutory right to claim 'reasonable additional costs of recovery' under The Late Payment of Commercial Debts Regulations 2013 FOR BUSINESS DEBTS ONLY. So you don't need the clause written into any contract although we recommend that you do to:

i) help reduce quibbles and arguments with business clients; and
ii) to extend this right to your consumer clients if things go awry.
This has the potential to give businesses between two (2) and eleven (11) times the leverage over a late-paying debtor than before 16th March 2013 for debts between £1000 and £10,000. Not sure if I can include a link to my blog post on the topic but here goes:
blog.termsandconditions.co.uk/2013/03/new-credit-control-powers-unleashed.html

By leveraging these extra powers, it's my firm belief that you can reduce your reliance upon expensive debt collection agencies and costly/slow legal action. Because every business has the where-with-all to apply significant influencing power over debtors given the right tools.

In essence, you should go back to your collection agency and ask them to finish the job properly ..if they know how.

Hope this helps
Best Regards
John
www.termsandconditions.co.uk

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7 years 2 weeks ago #965 by Littlemac
Hi John

Thank you that's very helpful. Seems as though we've had our fingers burned this time, but it won't happen again!!

We will definitely be asking the collection agency to follow through and seek to recover any outstanding statutory interest and the statutory compensation instead of simply closing the file! Compared to their charges the compensation is very little, but better than nothing.

I hope all this has been useful to other users and may prevent another company falling foul of those less than honest customers who appear to use hard working small businesses like ours as a way of getting a cheap loan!! Should be a way of 'naming and shaming' these rogues.

Once again, many thanks for all the help here.

Regards
June Davison
B & C Building Contractors Ltd.

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7 years 2 weeks ago #966 by john@termsandconditions.co.uk
You're welcome June. By the way, re naming and shaming, you may be able to add your payment experience with this debtor to a publicly accessible record via your credit credit reference agency depending on your account with the same.

Best Regards

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