What is Collection Commission and how is it calculated?
Some legal documents such as hire purchase agreements, loan agreements and other trade debts usually have clauses protecting creditors against defaulting debtors. As part of their terms, a provision is included that binds the debtor to pay any legal costs or collection commission that the creditor may incur when attempting to sue for the debt.
The collection commission fee is agreed on beforehand with the client. When an account is handed over for collections, the client must provide information as to what he/she requires from the legal team.
- Include phone calls, messages and email correspondence to set up an arrangement.
- This could be billed as a retainer or per-item-billing. (*see descriptions below.)
- Include letter of demand, acknowledgement of debt, summons.
- These items are billed as per company rates and are based on amount of time spent on the items, as well as the amount of information that is required.
*General costs of above-mentioned items:
Letter of demand (LOD): from R250-R600.
Acknowledgement of debt (AOD): from R300- R800
Summons: from R2000-R3500.
The company and client agree on a monthly set fee per file. This includes all correspondence and
work done on the file, as well as collection commission.
THE RISK: some companies may not go the extra mile for you, especially if the work exceeds the retainer amount.
The client is billed per item, e.g. phone calls with the debtor are calculated per minute. An amount for collection commission will be added to every item.
THE RISK: This could become very expensive if every single item is added at the end of the month.
Important to Know:
Collection commission is also added when the debtor pays directly into the company’s trust account. A percentage thereof is kept for costs. It must be 10%, but not exceeding R1,000. This was decided on 24 July 2010 by the council in Ruling 6(2).