It frequently happens that an outstanding invoice or claim is not paid. In order to still get the claim paid, costs often have to be incurred by the creditor. These costs to collect a claim are called extrajudicial collection costs. Reasonable costs or reasonably incurred collection costs must be reimbursed by the liable party.
Extrajudicial Recovery Costs Act
On 1 July 2012, the rules on claiming extrajudicial costs (Section 6:96(2)(c) of the Dutch Civil Code) changed. The standardisation of collection costs for monetary claims is laid down in the Dutch Extrajudicial Collection Costs Standardisation Act (WIK). A requirement is that the costs were reasonably incurred and that the amount of the costs must be reasonable. These rules cannot be deviated from where consumers are concerned. An advantage of this new extrajudicial costs regulation is that it is easy to calculate how much extrajudicial costs the creditor can claim from his debtor on top of the principal sum.
What are extrajudicial costs?
The term extrajudicial costs should be interpreted broadly, so that administration costs, intake costs or registration costs also fall under the rules of the Extrajudicial Collection Costs Act and are not separately eligible for compensation. The regulation on statutory extrajudicial costs only applies to claims arising from agreements to pay a sum of money. The extrajudicial costs scheme does not apply to, for example, a claim for damages.
When are there collection costs?
If companies conclude agreements among themselves, they retain the freedom to make different arrangements. For instance, companies are free to mutually agree on a payment term. In any case, this term must be considered reasonable. If the creditor’s outstanding invoice does not specify a payment term, the statutory term of 30 days applies. For business claims, the compensation of extrajudicial collection costs can already be charged as soon as the payment term of the claim has expired. For businesses, however, the law requires a reminder to be sent.
Business to business
If companies conclude agreements among themselves, they do retain the freedom to make different arrangements. For business receivables, the compensation of collection costs can already be charged immediately as soon as the payment term of the claim has expired. For businesses, therefore, there is no legal requirement to send a reminder. Thus, companies are also free to agree on a payment term among themselves. In any case, this term must be able to be described as reasonable. If the creditor’s invoice does not specify a payment term, the statutory term of 30 days applies.
How are collection costs calculated?
The amount of collection costs is determined using a percentage of the principal sum of the claim or outstanding invoice. As the principal amount of the claim increases, the percentage decreases in stages. There is also a minimum amount and a maximum amount. To calculate the amount, the graduated scale below applies, as standardised in the Dutch Extrajudicial Collection Costs Act:
15% of the principal sum of the claim over the first € 2,500, with a minimum of € 40;
10% of the principal sum of the claim over the next € 2,500;
5% of the principal sum of the claim over the next € 5,000;
1% of the principal amount of the claim over the next € 190,000;
0.5% over the excess of the principal sum with a maximum of €6,775.
The extrajudicial costs or statutory collection costs according to the Dutch Extrajudicial Collection Costs Act therefore amount to at least € 40. The maximum collection costs may be € 6,775. Whether VAT may be charged on the collection costs depends on whether the creditor itself is subject to VAT.
The following creditors are not subject to VAT, which means that charging VAT on collection costs is permitted:
- Educational institutions
- Insurance companies
- Medical professions
- The government
Calculating collection costs:
A calculation example
The principal amount of the claim is €11,000, then the creditor can charge extrajudicial collection costs:
Over the first €2,500 15% (minimum €40) €2,500 €375.00
Over the next €2,500 10% €250.00
Over the next €5,000 5% €500.00 €250.00
Over the next €190,000 1% € 1,000.00 € 10.00
More than one claim against a debtor?
If a company has several claims on the same (private) customer, the ‘addition rule’ applies. The creditor or a collection agency may not charge collection costs separately for each claim, but must calculate the costs over the total claim or the full invoice amount.
Regulations on consumer collection costs
Before a company may charge collection costs to a consumer, a number of formal requirements must be met. A reminder must be sent after the consumer has defaulted. In most cases, this means that a reminder should be sent after the agreed payment term has expired.
Where no deadline for payment has been agreed, another first reminder should be sent to trigger ‘default’. In other words, in cases where a final payment term has been agreed, at least one reminder should be sent before collection costs are due. In cases where no deadline for payment has been agreed, at least two reminders should be sent before collection costs can be claimed.
The (last) reminder should include the following:
- A statement that the consumer or debtor still has 14 days to pay, without having to pay collection costs;
- The exact amount of collection costs due if payment is not made within 14 days (whereby, of course, no more may be demanded than the maximum collection costs allowed by law);
- If a lower amount is requested, the statutory maximum should also be stated;
- If the company concerned cannot offset sales tax, the costs in the table above may be increased by VAT; this should then be explicitly stated in the letter.
These rules also apply before an individual can charge collection fees to another individual. If the procedural requirements have been met and the 14-day payment period in the final demand letter has expired without payment being made, the collection costs are due anyway. A debtor is obliged to pay collection costs in this case.
Other costs besides collection costs
In addition to claiming collection costs, the creditor can also make the debtor pay interest. The amount of these other costs is stated on the demand letter. A creditor or debt collection agency may not charge other other costs. A debtor or the liable party is obliged to pay statutory interest if the payment term is exceeded.
Judicial award of collection costs
In its judgment of 10 July 2015, the Supreme Court ruled on the court’s award of extrajudicial collection costs. In this ruling, the Supreme Court considered that if a debtor or debtor has paid the principal amount due late and collection costs are already due, that in that situation, with the payment first, the extrajudicial collection costs have been paid. The creditor or collection agency then has the advantage that interest on the principal amount can continue to be claimed.
The Supreme Court has also ruled on extrajudicial collection costs in business-to-business cases. As mentioned earlier, companies are authorised to deviate from the legal rules, for instance through general terms and conditions. However, the court has the power to moderate these often higher collection costs to the amount determined by law.
The Supreme Court indicated in the aforementioned judgment that this power of mitigation does not exist, however, if the creditor states – and in the event of a dispute makes it plausible – that the costs incurred are higher than the amount determined by law.
Ask our lawyers for free advice
With the right legal assistance, you are stronger. Do you have questions about unpaid claims or would you like more information on extrajudicial collection costs? Then contact one of the lawyers at Fruytier Lawyers in Business without any obligation.« Back to corporate law