What Are Recoverable Costs?
Recoverable costs are additional collection fees that can be recovered from your debtor. You are only entitled to recover these collection costs from your debtor provided you have adequately complied with the rules of the Fair Trading Act in at least one of the three following ways:
- Display a large notice in your office informing customers that they will be liable for collection fees, late payment fee’s, administration fees etc if they do not pay for the clients services by the agreed date. (Download Free Recoverable Costs Sign)
- Provide customers with a written explanation of your ‘terms of trade’ before they receive the goods or service from the client. It should clearly explain that the customer will be liable for collection fees, late payment fees etc if they don’t pay within the specified time.
- Have customers endorse cheques agreeing to be liable for collection costs should the cheque be dishonored.
If you do have one of the above, please forward a copy to us in order for collection cost to be added to the debt.
A statement on an account /Invoice/Letter sent after the service or goods have been provided to the debtor will not enable you the client to demand extra costs.
How could you be breaking the law?
Demanding Collection fees or late payment fees if you have not complied with the above Fair Trading Act options.
Most businesses have problems with bad debts, and effective ways of recovering these debts are necessary. However if collection costs are to be charged to the debtor, your customer needs to be informed of this at the time of the original agreement for goods or services.
If your customer was not informed of these potential costs when incurring the debt, then you could be breaching the Fair Trading Act if you or your agent subsequently demands these fees.
The Commerce Commission believes that by making such demands without a prior agreement you are misleading the customer about your right to charge these costs and about their obligation to pay.