Many businesses and debt collectors risk prosecution from the Commerce Commission.

If you:

• Demand collection fees or late payment fees when they were not part of the contract;
• Warn debtors that non-payment of the debt will have inevitable legal consequences;
• Employ a debt collector who demands collection fees on your behalf when not part of the contract;
• Are a debt collector who demands such payments when they were not part of the contract;

You could be prosecuted for unfair trading.

Creditors are entitled to seek repayment of outstanding debts.  However, businesses attempting to recover debts and Debt Collecting Agencies acting on their behalf, must take care to comply with the law.

Debtors are only liable for collection fees and late payment fees if they were made aware before incurring the debt that they may face such charges.  Any attempt to make them think they have to pay “collection fees”, “recovery fees” or “late payment surcharges” which were not part of the contract would be misleading. 

What Should You Do?

If you wish to recover additional costs from your customers in the event they do not pay for goods or services you provided, you must inform them of these additional costs before they agree to the supply of goods or services. 

Ways to do this include:

• Displaying a large notice informing customers that they will be liable for collection fees and late payment fees if they do not pay for your services by the agreed date;
• Providing customers with a written explanation of your terms of trade before they agree to buy.  This should clearly explain that customers will be liable for collection fees and late payment fees if they do not pay within the specified time;
• Having customers endorse cheques agreeing to be liable for collection costs should the cheque be dishonoured;
• Choose the right person for the job.  Many so called professionals only handle debt collection under sufferance.

The bottom line … the various steps you take must ensure that any reasonable customer would be aware that late payment results in additional charges.  A statement on an account sent after the service or goods have been provided is not enough to enable you to demand these extra costs.