It is important to allow for debt recovery costs in your terms of trade when you provide credit.

Recently, a new client asked us to chase an unpaid debt.  Unfortunately, their terms and conditions did not allow for recovery of debt collection costs, including legal fees. So although we could recover the debt, we were not able to seek recovery of the legal costs.

The Commerce Commission is quite clear that creditors and their agents should not demand collection fees or late payment fees unless they are contractually entitled to demand these.

Doing so is misrepresentation and breaches the Fair Trading Act. Businesses that demand debt recovery costs without a contractual entitlement may be convicted and fined.

Businesses can create a “contractual entitlement” to debt recovery costs by providing new customers with written terms of trade before goods or services are provided.

We recommend providing written terms of trade to every customer. It is also a good idea to have customers acknowledge receipt or actually sign the terms, to avoid later arguments.

If your terms of trade allow for debt recovery, you will be able to initiate legal action to recover both the debt and your debt recovery costs, and if successful you will avoid remaining out of pocket.