The seven most frequently asked questions about debt collection in the logistics industry.
We explain how it works and who pays.
The order has been delivered and the invoice sent. But no payment is forthcoming.
One way of dealing with late payment is to hire a debt collection service. But many people have no idea what that actually entails.
This blog article provides answers to the seven questions many people ask before hiring a debt collection service.
- How many dunning notices do I have to send before I can engage a debt collection service?
- What services does the debt collection company provide?
- How do I hire a debt collection service?
- How does debt collection work?
- What limits are placed on debt collection services?
- How high are the fees?
- Who pays the debt collection fees?
Debts must be paid immediately, unless otherwise agreed upon within the contract. Nevertheless, sometimes the money is not forthcoming. There may be many different reasons, but the consequences are unpleasant for all parties. Payment is considered late 30 days after it was due. As a creditor, you are then able to take additional steps and, for example, hire a debt collection service to collect your money. Here are some answers to frequently asked questions regarding hiring a debt collection service:
1. How many dunning notices do I have to send before I can engage a debt collection service?
According to the EU Directive, there is no need to send a dunning notice once the due date has passed. The transport customer has automatically defaulted on the payment. A debt collection service can be hired immediately.
There is no legal requirement to send a dunning notice, but sending one may help you to stay on good terms with your business partner. However, if, after the second dunning notice, you still have not heard anything from the debtor and the payment has not been made, it may be time to consider professional debt collection services.
2. What services does the debt collection company provide?
The debt collection company examines the issue for both parties and can act as a neutral intermediary. It views any receipts and can let you know whether or not the claim is valid.
In addition, a professional accounts receivables management company can help its customers collect their money and will assume responsibility for communicating with the debtor. Doing this should clarify the issue and/or ensure that the debt is paid. In addition, the debt collection service may negotiate alternative modes of payment if the creditor desires.
The debt collection service is allowed to actively collect on the debt. This means specifically that it can prompt the debtor to pay the receivables.
3. How do I hire a debt collection service?
There are options for managing accounts receivable yourself. TIMOCOM has an article containing three debt collection tips. These tips include contacting the customer yourself and reminding them that payment is due. However, it makes sense to contact a specialist who has experience in collecting on late payments or, even better, is specialised in collecting on debt in your specific industry. Freight forwarding and logistics companies should make sure to choose a service that fits this description. It is generally not difficult to hire a debt collection service, you usually just send a letter or fill out a form online. To ensure that the debt collection company can do its work, you will have to provide them with proof that you are owed money. That is unpaid invoices, the freight contract, or similar. Once you have provided these documents, you will have to confirm that you are hiring the debt collection service. At that point, the debt collection team can begin with accounts receivables management,
4. How does debt collection work?
Once the order confirmation and all other important documents relevant to the case have been sent to the debt collection company, the company will verify the claim.
It will check that all documents are in order. For example, was payment really due more than 30 days ago? Was a claim for damages made? Is an invoice unpaid? The debt collection services uses the documents provided to check that the claim is undisputed and legally valid.
It then gets in touch with the debtor. The debtor is given the opportunity to provide their view of the situation and make a statement. They can confirm that the money is owed or dispute the claim, and provide their own documents as proof. As part of this process, they may agree to instalment payments or partial payment of the debt.
5. What limits are placed on debt collection services?
A debt collection service cannot dispense justice, that is it cannot sentence anyone as a court of law might, or even force the debtor to make a payment. It is allowed to request that the debtor make the payment in the event that it is clear that payment is due. If the claim is valid, the debtor must make the payment to the creditor.
A debt collection service, therefore, has no more rights than those of the original creditor. It simply takes over correspondence with the debtor for the creditor. It has legal expertise that allows it to determine the facts of the case, but is not legal counsel. If a case goes to court, the debt collection service will not be involved.
6. How high are the fees?
If a logistics company decides to hire professional accounts receivables management based in Germany, there is a limit to the amount it can be charged. The fee is based on the chart governing lawyers fees within Germany, which names a set price for the service. Processing a debt collection case costs anywhere between fifty percent and two hundred and fifty percent of the fee to be charged based on the chart. The chart lists fees based on the original amount owed. Even in difficult or particularly elaborate cases, the maximum processing fee is 2.5 times the fee as listed on the chart. Often, an average fee of 1.3 is agreed upon. This sounds complicated, but is actually easy to calculate.
Example: Let us assume that the goods have been transported, but the fee remains unpaid. The amount invoiced is 500 euro. The debt collection costs for this average case, at 1.3 times the lawyer’s fee amount, come to 58.50 euro.
7. Who pays the debt collection fees?
There are many reasons that invoices might remain unpaid, however those who fail to pay them should know that unpaid invoices cost time and money. For example, writing and sending dunning notices requires both bureaucratic effort and financial expenditure. The creditor can require the debtor to fully reimburse them for expenses incurred during collection of the debt.
There is an EU Directive that provides clear information on the rights and obligations pertaining to all parties and governing what to do when bills remain unpaid. We describe the legal details regarding reimbursement in this TIMOCOM blog article. This information is particularly important for an international industry such as logistics.
Of course, unpaid invoices have to be paid, particularly if a company wants to maintain good business relationships with their partners. However, if payment is not made, it is important to know your rights and options. A debt collection service offers you professional accounts receivables management and helps you collect on debts.
In the transport and logistics industry, accounts receivables management is a challenge, considering that it often takes place across country borders and requires a variety of languages. The TIMOCOM international debt collection service team therefore focuses on working with customers across Europe. They work in 27 languages as a neutral intermediary to help companies collect on unpaid debt.
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