Collection fees (correctly: collection costs) - Everything you need to know about collection costs

You often hear and read a lot of viewpoints and bad advice regarding collection costs. This is one of the reasons why collection companies suffer from quite a bad reputation. However, upon closer inspection, we see that collection fees are absolutely justified costs. The text below explains why collection involves costs, why these are justified costs and how fees for debt collection are calculated.


Reasons for collection costs

Collection companies are business enterprises in the private sector and provide a service for other companies: the collection of overdue accounts. This is an important topic for many companies since outstanding accounts damage a company's liquidity and, ultimately, can even lead to its insolvency. Of course, this service of professional debt recovery cannot be provided free of charge by the collection company, which, after all, needs to cover its costs, like any other company.

The collection costs cover the services provided by the collection company. These services, e.g. include the prior examination of whether the conclusions based on the facts are warranted, correspondence with the debtor and, in some cases, collection via phone. Moreover, in many cases, investigations are necessary in the framework of debt collection. For example, debtors' addresses have to be researched if debtors move without informing their contracting partner of their new address. Collection costs are necessary to cover these services.

In addition, a company has the right to commission a collection service provider if accounts are overdue. Many companies only use this option after they have sent detailed commercial dunning letters to the debtor. Unfortunately, this approach often remains fruitless.

Collection costs. Part of the default damage

Initially, the creditor pays the collection costs to the service provider. However, he/she can have the collection costs incurred refunded by the debtor. This is provided for in sections 280 and 286 of the German Civil Code (BGB).  This establishes that the debtor has to pay the so-called default damage to the creditor. The term default damage refers to financial disadvantages which the creditor sustains as a result of the debtor's payment default.

This can include own dunning costs or default interest. In the end, the costs incurred during court dunning proceedings are also part of the default damage. Moreover, collection costs are also part of the default damage. Therefore, these ultimately also have to be assumed by the debtor. In general, we have to note that the default damage increases with the escalation of the dunning procedure. Therefore, a speedy resolution of the situation lies in the debtor's best interest.

Reimbursability of collection costs

As outlined above, collection costs can be reimbursed in the context of the default damage. This provision was expressly recognised by German Federal Supreme Court in a ruling in June 2005. According to this, it is standard German case law that collection costs have to be assumed by the debtor and reimbursed to the creditor. Moreover, in the case of court dunning proceedings, the collection costs can be asserted as an accessory claim to their full extent. If an enforceable legal title is obtained, the collection costs incurred until that time are part of the overall claim and will be finally enforced.

Amount and calculation of collection costs

The specific amount of the respective collection costs is indicated in the letter in which the collection company contacts the debtor. According to section 11a RDG (Legal Services Act), the collection company has information and explanation duties with regard to the first assertion of a claim towards a private individual. These e.g. also refer to the amount of the collection costs and the reasons for such.  Sections 280 and 286 BGB form the basis for asserting the collection costs. The amount of the collection costs is capped at the amount which a lawyer could claim for the same work (section 4 sub-section 5 RDGEG). Because of this provision, the rules of the German Lawyers' Compensation Law are applied to the work of collection companies based on the provisions in section 13 RVG in conjunction with no. 2300 VV RVG (Collection costs) and section 23 RVG in conjunction with No. 7002 VV RVG (Expenses). According to this, collection costs are allowed up to a comparable fee of 1.3 times (so-called "threshold fee"). This is the fee which a lawyer can charge if the activity is neither difficult nor overextensive.

The amount of the collection costs is based on the amount of the principal claim. The higher the due account of the creditor, the higher the justified collection costs will be.