Collection fees (or: collection costs) - everything worth knowing about the costs of collection services

There is always a lot of polemic and bad advice to be heard and read on the topic of collection costs. This is one of the reasons why collection agencies suffer from such a bad reputation. On closer inspection though, collection fees are perfectly eligible costs. The following text explains why costs are incurred in debt collection, why these costs are eligible and how the fees for debt collection are calculated.

 

Reasons for collection costs


A collection agency is part of the private sector and offers a service to other companies, namely the collection of due receivables. For many companies, this is an important issue, as outstanding receivables affect the company's liquidity and can even lead to insolvency. It goes without saying that a collection agency cannot offer this professional collection service at zero cost. It has to break even, just like any company in the private sector.

The services of a collection agency are compensated with collection costs. These services include prior verification of the case, correspondence with the debtor, and in some cases, telephone collection. However, often investigations are deemed necessary as part of the collection. The addresses of debtors must be researched, for example, if they move without informing the contractual partner of their new address. Collection costs are necessary to cover the mentioned services.

Over and above, it is a company's prerogative to appoint a collection service provider when receivables are due. Many companies only resort to this remedy when they themselves have dunned the debtor. Unfortunately, this approach is often unsuccessful.

 

Collection costs: part of the damage caused by delay


The creditor initially pays for the collection costs and pays his service provider. He can however claim the incurred collection costs from the debtor, as per the provisions §§ 280, 286 of the German Civil Code (BGB). It rules that the debtor must compensate his creditor for damages caused by delay. The term "damages caused by delay" refers to the financial disadvantages suffered by the creditor because his debtor is in delay of payment.

This may include their own dunning costs or the default interest. Finally, costs arising from a legal dunning procedure are included in the damages caused by delay. Collection costs are also added to the damages caused by delay. Thus these must also be borne by the debtor. It should be noted that as a general rule, damages caused by delay will rise with the escalation of the dunning procedure. Therefore it is also in the interest of the debtor, to remedy the situation as soon as possible.

 

Recovery of collection costs


As stated above, collection costs are recoverable as part of damages caused by delay. The Federal Court of Justice expressly recognized this regulation in a judgement in June 2005. It is therefore current German jurisprudence that collection costs are borne by the debtor and that the creditor must be compensated. Even if it should come to a legal dunning procedure, the collection costs can be claimed in full as an ancillary claim. Should it get to an enforceable title, the collection costs incurred by then are part of the total claim and ultimately enforced.

 

Amount and calculation of collection costs


The debtor is notified about the actual amount of the respective collection costs in the message which the respective collection agency contacted him with. According to § 11a of the Legal Services Act (RDG), a collection agency has information and disclosure obligations when a receivable is asserted to a private person for the first time.  These refer to the amount and the origin of collection costs, amongst others. Basis for the claim is on the merits of §§ 280, 286 of the German Civil Code for the enforcement of collection costs. The amount of the collection costs is limited to a sum that a lawyer could claim for the same activity (§ 4 para. 5 Introductory Act to the Legal Services Act). As a result of this stipulation, the provisions of the Lawyers' Remuneration Act (RVG) are analogously applied to the activities of collection agencies. The relevant standards are § 13 RVG in conjunction with no. 2300 VV RVG (collection costs) or § 23 RVG in conjunction with no. 7002 VV RVG (expenses). Thereafter collection costs are eligible up to a comparable 1.3 fee ("threshold fee"). A lawyer can assert this if an activity was neither difficult nor extensive.

The amount of the collection costs depends on the amount of the principal claim. The higher the due receivable of the creditor, the higher the calculated collection costs.