Minimizing the Cost of Debt Collection

As published in BizWest’s Thought Leader Column, August 2022

The goal in recovering any debt is to settle the account as efficiently and inexpensively as possible.

The upfront costs of debt collection may include collection agency fees, court costs, attorney fees, and private investigators.  Some of these costs would only be applicable if a creditor seeks to obtain a legal judgment against a debtor.  Once a legal judgment is obtained, further costs can be required to collect on the judgment, which can also include garnishment fees, asset investigation, and lien filing fees.

The best approach for an individual or business to settle a debt is to preemptively prepare for non-payment, beginning with a well-thought-out and expertly executed contract.  Contracts that include clauses for reimbursement of common collection costs, such as court costs and attorney fees, may help recover the costs associated with the collection process.  It is important to keep in mind that such clauses are meant to reimburse or recover costs from collection, not prevent them altogether, and some upfront costs will still be required.

The inclusion of a contract clause regarding interest accruing upon nonpayment may also be useful in the prompt settling of a debt; however, there are multiple Colorado and federal laws that regulate interest charges, so it may be helpful to contact an attorney to review such language before including it in a contract.

In a situation where a business is entering into a contract with another business or company, it may be wise to consider including a personal guarantee clause, requiring that the owner must promise to pay the creditor in full if the business is unable do so.

If, despite having taken all possible preemptive measures, a business or individual finds itself in the position of having to take legal action to recover a debt, it is highly advisable to engage the services of an experienced collections attorney to navigate the court system.  A creditor may believe it is minimizing its costs by attempting to maneuver the court system without legal assistance, but if there is noncompliance with collection standards and laws, this strategy can be more costly.

Debt collection costs can be minimized with forethought to contract clauses before a business transaction goes unpaid, including a concise plan on how to collect your debt and proper execution of that collection.



Savannah M. Nelson
Latest posts by Savannah M. Nelson (see all)