The Ministry of Consumer Affairs has been giving some thought to outlawing unfair contract terms under their review of consumer law.
Essentially the Ministry sees some clauses in standard type contracts being unfair to consumers and they want to have them banned by statute. A recent Sunday Star Times article gives some good examples of the effect these clauses.
Cash Flow Doctors believes that there is a good chance that these changes will be made - there is after all unfair contract terms legislation already in place in Australia and the UK. They would also seem to be a reasonable thing to do.
HOW DOES THIS EFFECT YOU?
If you are considering setting up a terms of trade or standard contact it bears to keep in mind about 'unfair' clauses. This doesn't mean you should not put a new terms of trade in place but keep in mind the intended changes to the law.
If you have terms of trade already you don't have to do anything at present. We will be advising our clients via our newsletter when (and if) any changes do take place so sign up now.
For Cash Flow Doctors clients we will contact you all if necessary to update your current documentation as required as part of our regular update process.
Sunday, October 31, 2010
Sunday, October 17, 2010
7 Day Waring Letter
One of the comments that I often hear when talking to a prospective client is that they want to give the slow payer one last chance to pay their account by sending a final warning letter before placing the debt with a collection agency.
I don’t have a problem with this so long as the final warning letter is part of the usual accounts receivable process. I sometimes ask, out of curiosity, to review the wording of the final warning letter used to see how it compares to my own.
There are some common mistakes that are made when a final warning letter is used.
Firstly they do not stipulate how much needs to be paid to clear the outstanding debt. I always say that the amount to be paid is the amount you want in your bank account. It may include interest or administration charges along with the balance of the invoices outstanding.
However, keep in mind that you only have the right to charge additional fees on top of the amount of the overdue invoice if you have told your debtor they are liable for these penalties at, or before, the time you form a contract with them. The issue of the timing of disclosure will be the topic of a further column but if you want to find out more go to www.comcom.govt.nz/debt-collecting/ and download the debt collecting fact sheet.
Secondly if you are going to threaten to send the debt to a collection agency then follow through with the threat otherwise the slow payer will thumb their nose at you. In other words you need to have made the decision to place the debt with a collection agency before you send the final warning letter.
It is also a good idea to name the collection agency you are going to use first as it gives the impression that you have already spoken to the collection agency, and they are ready to proceed with the collection. This also means your debtor is not surprised when your collection agency first contacts them.
Finally, if you are able to on-charge the costs of collection tell your slow payer how much this will be in dollar terms. Which do you think is the more effective statement?
• Collection costs will be added to the amount outstanding, or
• $250 of collection costs will be added to the amount outstanding.
Debt collection is psychological and it pays to take advantage of every tool possible to encourage payment of an outstanding debt. Final warning letters can be very effective if worded and used correctly.
A further benefit of a well worded warning letter is that it is becoming more common for the Disputes Tribunal to look unfavourably on you charging penalty interest, administration fees, and collection agency costs if the debtor has not been warned first. This is despite the fact that you have the right to charge these fees if they have been properly disclosed as required by the Fair Trading Act.
I have received feedback from clients who have used our final warning letter as part of their process and have successfully recovered long outstanding debt. Even though I ultimately miss out on a commission, it does give me a great deal of satisfaction to hear of payments being made.
I don’t have a problem with this so long as the final warning letter is part of the usual accounts receivable process. I sometimes ask, out of curiosity, to review the wording of the final warning letter used to see how it compares to my own.
There are some common mistakes that are made when a final warning letter is used.
Firstly they do not stipulate how much needs to be paid to clear the outstanding debt. I always say that the amount to be paid is the amount you want in your bank account. It may include interest or administration charges along with the balance of the invoices outstanding.
However, keep in mind that you only have the right to charge additional fees on top of the amount of the overdue invoice if you have told your debtor they are liable for these penalties at, or before, the time you form a contract with them. The issue of the timing of disclosure will be the topic of a further column but if you want to find out more go to www.comcom.govt.nz/debt-collecting/ and download the debt collecting fact sheet.
Secondly if you are going to threaten to send the debt to a collection agency then follow through with the threat otherwise the slow payer will thumb their nose at you. In other words you need to have made the decision to place the debt with a collection agency before you send the final warning letter.
It is also a good idea to name the collection agency you are going to use first as it gives the impression that you have already spoken to the collection agency, and they are ready to proceed with the collection. This also means your debtor is not surprised when your collection agency first contacts them.
Finally, if you are able to on-charge the costs of collection tell your slow payer how much this will be in dollar terms. Which do you think is the more effective statement?
• Collection costs will be added to the amount outstanding, or
• $250 of collection costs will be added to the amount outstanding.
Debt collection is psychological and it pays to take advantage of every tool possible to encourage payment of an outstanding debt. Final warning letters can be very effective if worded and used correctly.
A further benefit of a well worded warning letter is that it is becoming more common for the Disputes Tribunal to look unfavourably on you charging penalty interest, administration fees, and collection agency costs if the debtor has not been warned first. This is despite the fact that you have the right to charge these fees if they have been properly disclosed as required by the Fair Trading Act.
I have received feedback from clients who have used our final warning letter as part of their process and have successfully recovered long outstanding debt. Even though I ultimately miss out on a commission, it does give me a great deal of satisfaction to hear of payments being made.
Monday, October 4, 2010
Disputes Tribunal Findings
As a debt collector our clients are adding costs onto any debts to be collected where they can. This happens when they have disclosed this right to their debtor when a contact was formed between the parties.
A number of decisions I have read from the Disputes Tribunal appear to take away the creditors right to charge costs unless they have given the debtor 'fair warning'. By fair warning the Disputes Tribunal seem to consider a final warning letter as being satisfactory.
At Cash Flow Doctors we have developed a final warning letter which anyone is welcome to use on their own letter head.
The other benefit of the wording of this final warning letter is that credit reporting agencies such as Veda Advantage also require fair warning before a debtor can be listed as a defaulter.
A number of decisions I have read from the Disputes Tribunal appear to take away the creditors right to charge costs unless they have given the debtor 'fair warning'. By fair warning the Disputes Tribunal seem to consider a final warning letter as being satisfactory.
At Cash Flow Doctors we have developed a final warning letter which anyone is welcome to use on their own letter head.
The other benefit of the wording of this final warning letter is that credit reporting agencies such as Veda Advantage also require fair warning before a debtor can be listed as a defaulter.
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