Using a collection agency: when & what are the costs?

Introduction

Almost every entrepreneur has to deal with it: a customer or client who does not pay the invoice. Are you dealing with a customer who should have paid long ago and are you thinking about using a collection agency? Then pay close attention to the difference whether you are dealing with a business customer or a consumer.

In this article, we discuss all the issues surrounding using a collection agency and more:

What is a direct debit?

Debt collection is the process by which a creditor (the one who is owed money) tries to collect an outstanding debt from a debtor (the one who owes the money).

What is a collection agency?

A collection agency is a company that specializes in collecting outstanding debts on behalf of creditors. When a debtor (the one who owes the money) does not pay on time or does not respond to payment reminders, a creditor (the one who is owed money) may decide to use a collection agency.

Engaging collection agency with private customer

A large proportion of entrepreneurs in the Netherlands have consumers as customers. They fall under private customers and therefore under different legislation than business customers. Consumers are in fact better protected in the Netherlands than customers who make business purchases. With private individuals, for example, you may not just use a collection agency. There are a number of steps you must first comply with:

1. Has your customer not paid the invoice? Then send a reminder. The consumer then has 14 days to pay the invoice.
2. Also create what is called a fourteen-day letter that you attach to the demand letter. This letter must meet the correct components; otherwise, the letter is not valid and you may not charge collection fees. For example, the correct date is very important, as is the correct collection fee. Make sure the letter is always sent online in addition to physically in order to handle the date.
3. Do you still get no response after a reminder, reminder and fourteen-day letter? Then you may engage a collection agency to still collect money from a consumer.

It is important to comply with these steps. Precisely because the Dutch consumer is so well protected, even a small mistake can prevent you from charging extra fees. Also, you may not just immediately put a collection agency on the invoice - you really have to remind a private customer to pay first.

Using collection agency with business customer

This is different with business customers: in fact, businesses in the Netherlands are much less protected than consumers. Did you know that there are not even legal deadlines for calling in a collection agency when a business customer has not paid on time? So, by way of example, you could engage an agency immediately when the invoice is a day overdue. It is not obligatory to first send a reminder or draw attention to a payment reminder. Nevertheless, practice shows that it is recommended. Chances are you may want to keep that business client as a customer.

Also, something may have come up that caused the customer to forget to pay. So always first contact yourself and ask why the invoice has not been paid yet. A large proportion of customers will pay the invoice after all - and you are probably as good friends. Of course, there will always be a small percentage that doesn't pay. Send a payment reminder or reminder immediately or, if necessary, switch immediately to using a collection agency. Many entrepreneurs, both those who have just started a business and old hands in the trade, don't know it, but an invoice can become time-barred. That means that if you wait too long, at some point you will no longer be entitled to your money.

Collection agency fees

The cost of using a collection agency can vary depending on the services they offer and the type of debt you want to collect. In general, there are three types of fees that collection agencies charge:

1. Filing fees: These are the start-up fees charged when you hire a collection agency. These fees can vary from €25 to €100, depending on the agency and the complexity of the case.
2. Success fee: Many collection agencies work on a 'no cure, no pay' basis. When an agreement is made to collect on a 'no cure, no pay' basis, you do not have to pay anything if the agency was not able to collect your claim. In exchange, the collection agency receives a success fee (percentage of the collected amount) if they succeed in collecting the claim. The success fee usually varies between 15% and 25% of the amount collected, depending on the size of the claim and the complexity of the case.
3. Cost of legal proceedings: If the collection agency fails to collect the debt amicably (out of court), it may be necessary to take legal action. In this case, legal fees and possible court costs may apply. These costs vary based on the complexity of the case and the lawyer's or bailiff's fees.

It is important to understand the fee structure of a collection agency before entering into a contract with them. Ask for a detailed quote and read the terms and conditions carefully.

Maximum collection costs

The creditor (business owner) or collection agency can also charge (part of) the collection costs. This is subject to a minimum amount of € 40. The maximum collection costs depend on the amount of the outstanding debt:

Let's clarify with a math example. Suppose the outstanding bill is 15,000 euros, then you, as an entrepreneur, may charge the following in collection costs:

• 2.500 * 15% = 375
• 2.500 * 10% = 250
• 5.000 * 5% = 250
• 5.000 * 1% = 50
• In total, that makes 375 + 250 + 250 + 50 = 925 euros

Statute of limitations on an invoice

You cannot collect a sent invoice forever; as crazy as that may actually be. You have provided a service or product and are therefore certainly entitled to your money according to the moral obligation. In the Netherlands there are statutory limitation periods for collecting invoices. The limitation period depends on the type of creditor and the nature of the agreement.

1. Business transactions (B2B): Business-to-business transactions are generally subject to a 5-year statute of limitations. This period starts the day after the invoice becomes due and payable.
2. Consumer transactions (B2C): Invoices related to business-to-consumer transactions are subject to a 2-year statute of limitations. Again, the period starts the day after the invoice becomes due and payable.
3. Contractual agreements: Parties can agree in a contract on a different limitation period. This can be either longer or shorter than the statutory period. It is important to check the contractual terms to determine which limitation period applies to the specific situation.

Note: The statute of limitations can be interrupted or extended. This happens, for example, if the creditor sends a reminder or if legal action is taken to collect the claim. It is wise to seek legal advice if you are dealing with statute of limitations on invoices.