How to Avoid the Need of Debt Collection #2

Make debt look unappealing.

Much of the work to avoid the need of debt collection comes with the preparation prior to commencing work. As described in the first post, one of the ways to do this is to add on extra fees if payment is not made.

You can compensate your time wasted chasing up this debt while also making debt look unappealing to your client. These fees are to show that if there are meaningless delays in payment, there are substantial consequences. For example, some debtors like to withhold payment just to see how far you will go to recover it. We would find the extra costs incurred by them would deter this type of response.

The fees you can add.

Admin / late fees.

Late fees are relative to the admin costs for followups and dealing with the overdue account. Usually seen as a flat amount added on monthly, we would usually expect to see 4-8 hours of admin work charged. When deciding on an amount, we suggest to keep it relative to the work undertaken.

If you are to charge an exorbitant amount, you may not only drive a further gap between you and the debtor, but any court action may render your late fees void.

Interest.

Charging 30% p.a compounding daily is not a reasonable interest charge. Unless otherwise advised by your solicitor, we suggest keeping to 10% p.a without compounding. As mentioned above, this is a reasonable amount to charge and will keep your debtor from feeling like they want a judge to review the matter.

Any court action will result in more delays and fees for you. You will see a common trend of “keep everything above board” when dealing with extra fees.

Collection fees and legal costs.

You are able to charge our fees and legal costs to the debtor. This is your best ammo when mitigating unpaid invoices with extra fees. We find clients who give a final notice stating “If not paid within 7 days, this matter will be referred to Creditormate and their fees will be charged to you”, have high chances of payment prior to needing collections.

The same can be said when escalating towards legal. In most cases, the courts can order up to 25% of the legal costs to be paid by your debtor. It makes sense to pay the debt rather than pay the legal fees on top, right?

How to legally add fees – important.

All extra fees are a grey area UNTIL you have a signed agreement. Many clients I work with have on their invoices, “This payment claim is made under the Security Of Payments Act“, however, it does not mean we can start charging every fee under the sun.

To have authority to charge extra fees, you must have a signed agreement with the debtor. This can be a contract, quote, T&C’s, PO etc. All that it needs is the debtor’s agreement to pay the extra charges on a defaulted payment.

Without the signature, you are in the grey area, relying on a judge to award the funds as payable.

Free, downloadable resources

At the time of writing this post, we are working on providing free templates for you to use in your pre-work agreements. We have done the groundwork so you don’t have to. Sit tight for these resources yet to come over the next few weeks.

They will be available here or we will notify you in our updates email which you can sign up for here.

With all the above points, we encourage further confirmation from your lawyer. All of this advice is general and not specific to your situation. If you wish to have personal advice given, please contact our office on info@creditormate.com.au / 0428 085 826.