Including a Debt Recovery Clause in your engagement letters can provide an important layer of comfort and financial protection should your firm ever wish to “go legal” to recover unpaid debts.
These clauses address the steps you may take to recover outstanding payments and address matters such as interest charges, involvement of collection agencies, or the initiation of legal proceedings.
Having a robust clause in your standard engagement letter also enables you to better consider the commercial viability of chasing certain types and sizes of debts.
Benefits:
- Protection Against Default Payments: This clause specifies the steps and measures that can be taken if the other party fails to make payments. It provides a clear legal framework for recovering owed money, ensuring a defined process in case of default.
- Legal Action: It details the available legal options, including hiring a debt collection agency or starting court proceedings, which can speed up the recovery process and improve the chances of successful debt collection.
- Deterrence: The presence of consequences for non-payment, such as additional fees, interest, or legal action, can deter the other party from defaulting, encouraging timely payments.
- Financial Stability: For businesses, incorporating a debt recovery clause is crucial for maintaining cash flow and financial stability, as it ensures mechanisms are in place to recover funds essential for budgeting and financial planning.
- Relationship Management: While the primary goal is to recover owed money, the clause also facilitates negotiations and settlements, providing a basis for resolving disputes and maintaining business relationships.
- Compliance and Risk Management: Including such a clause ensures compliance with relevant laws and regulations concerning debt recovery, helping manage financial risks associated with non-payment.
A Debt Recovery Clause protects the interests of the party providing the goods and services, offering a reliable mechanism to address and recover unpaid debts. A simple clause along the following lines will go a long way to bolstering your engagement letters …
“The Client shall pay to [accountant firm] on demand all costs, charges and or expenses incurred by [accountant firm] in consequence of any default on the part of the Client in performing or observing any term of these Terms of Agreement, or in exercising or enforcing (or attempting to do so) any rights or remedies of [accountant firm].
Note: Whatever clause you decide upon, you should check to ensure that it adheres to relevant legal guidelines.
For more information on this topic contact Dean Phillips via email deanp@feesynergy.com.au
