Recovery Costs Clause

The clause

This is general sample wording for a recovery-costs (indemnity-for-costs) clause within terms of trade. Replace each [placeholder].

RECOVERY COSTS

(a) If we have to take steps to recover an overdue amount, you are
    liable for our reasonable costs of doing so, including:
    - debt collection / mercantile agency fees and commission;
    - legal costs; and
    - other reasonable out-of-pocket expenses.

(b) These costs are payable in addition to the overdue amount and any
    interest, and form part of the amount you owe us.

(c) We may add reasonable recovery costs to your account as they are
    incurred.

Why 'reasonable' matters

Without this clause, the time and fees you spend chasing a late payer come straight off your bottom line. With it, those costs become part of the debt. The key word is "reasonable": a clause that tries to pass on unlimited or inflated costs invites challenge, whereas one limited to reasonable agency and legal costs is far more defensible. Linking the clause to your recovery model — for example commission-only agency fees — keeps the figures transparent.

How to use it

Make sure the clause is in the terms the customer accepted, and keep evidence of the costs you actually incur so you can show they are reasonable. Add them to the account transparently rather than as a vague surcharge. Because Merion works on a commission-only basis, recovery fees on a referred account are clear and tied to results — when an account is overdue you can simply refer the debt. Check that this clause lines up with your interest wording in the late payment interest clause.

Not legal advice

This is a general template and general information only — not legal advice. Whether particular recovery costs are recoverable depends on your contract and the circumstances. Have the clause reviewed by a lawyer before you rely on it.