Can debt collection costs legally be added to the debt?

Here we explain how the process works and when fees can be applied.

B2B (Business to Business)

When your debtor is a business, debt collection costs can be added to the debt either contractually, e.g. by way of your signed contract or your terms of business (Terms and Conditions) or by enforcing your statutory rights in accordance with Late Payment legislation, in particular the Late Payment of Commercial Debt Act 1998

If you haven’t got terms of business or a signed contract, you can rely on Late Payment legislation or alternatively, you can rely on your terms of business, should you have an appropriate clause. Either way, debt collection fees can be added to the debt in B2B matters.

B2C (Business to Consumer)

The rules are slightly different when it comes to B2C. Debt collection costs here are not legally enforceable unless you have a specific clause in your contract or terms of business (Terms and Conditions). Therefore, you may ask for these costs to be paid but there is no obligation for the debtor to pay them and if they refuse to pay then you cannot threaten legal action to recover the debt collection costs.

For consumer invoices, we can review your terms and conditions and advise you with regard to applying additional fees that can help offset the cost of recovery.

If you haven’t got a clause already then, we recommend you insert one as soon as possible. If you have a clause in your contract or terms of business, then you can legally add the cost that you incur to recover the debt to the principal owed sum. However, this doesn’t necessarily mean that a debtor will pay the debt collection costs, and it may be that you will need to issue legal proceedings to recover them. Depending on the value of the debt collection costs, it may not be cost effective to issue legal proceedings and therefore you will need to consider this before taking further action.  

Our specialist team can advise you on the best course of action depending on your circumstances. Controlaccount has been successfully collecting commercial and consumer debt on behalf of leading brand names, small and mid-sized businesses, public and not-for-profit organisations for forty years. Speak to us to find out more.