We are often asked the question about whether debt collection fees are deductible and whether the debtor can be legally bound and accountable for any fees that occur. You’ll be happy to know that the simple answer is ‘YES’ but in order for it to be so you, the business, must have clear terms of trade in place before the transaction occurs. Every business has the capacity, and a responsibility, to ensure that its customers are bound by its trading terms.

Recovering Collection Fees from the Debtor

If you have a properly executed written agreement, such as your trading terms, that has been signed by the debtor for them to pay your debt collection costs or administration fees relevant to debt collection then it may be possible for you to deduct your collection fees.

We’ve previously spoken about the important of your trading terms, in our article on debt collection tips, and ensuring that your trading terms are clearly defined, accurate and signed before the business transaction takes place. Your terms of trade should clearly outline the responsibilities and expectations between your business and the debtor.

Recovering Legal Costs

If you are successful in obtaining a court judgement against the debtor the court in each state will set down a scale of fees that can be added to the outstanding amount of debt.  When proceedings are filed the court will make an order for a sum that will include the debt, legal costs and even things such as interest. This can also happen in the reverse if the legal action that your business issues is defended then the magistrate may also order for costs against you in favour of the defendant.