Collection Cost Recovery Clauses

Many companies have credit agreements with their customers containing a clause that the customer agrees to pay all collection recovery costs should they default on their payment terms. However, what are the actual odds of enforcing a credit recovery cost clause in BC and Alberta?

Note: This article, or blog, is NOT to be construed as legal advice. This article is strictly an opinion from a debt collection point of view. Every collection file is unique and you should consult a lawyer when trying to enforce a collection cost recovery clause.

It is extremely rare for a customer to reimburse a company creditor for collection costs voluntarily.

In regards to consumer credit agreements, the chances of recovering all the collection costs are slim to nil in BC and Alberta. There are consumer protection laws that prohibit recovering all the collection costs from a consumer. This is particularly true with the lower courts such as BC or Alberta Small Claims, Civil Tribunal and the Residential Tenancy.

However, larger commercial agreements may have a slim chance of success.

First, the credit agreement recovery clause has to clearly define the commercial customer?s obligation. It is prudent to also define what types of costs are covered by the term collection costs. The agreement must also be signed. If suing on a large commercial account, the costs can be added to the Notice Of Civil Claim. Whether you will actually get the collection costs included in the Judgment is up to the Judge.

It should be kept in mind that when the collection costs are included in a Civil Claim the debtor can probably use it as a valid dispute.

If the debtor fails to file a defense, then the costs should be included in the Default Judgment amount. If the debtor tries to open up the Default Judgment at a later date, the following precedents should take effect:

The information above is general in nature and there are numerous factors a Judge will consider. In some respects this topic is a grey area. If the agreement collection costs clause is a major factor in collecting a commercial debt then it is wise to consult a lawyer for further particulars.