DEBT COLLECTION COSTS

Debts are inevitable in business operations. When clients or partners delay payment, creditors face cash flow difficulties and must consider the costs of legal debt recovery. What fees do legal debt collection service providers charge? What types of costs are involved? And what should creditors know to minimize these expenses? This article by TNTP provides an in-depth analysis to help creditors understand these issues before engaging legal debt recovery services (hereinafter referred to as “debt collection services”).

1. What are debt collection costs?

In practice, the total cost of debt collection may include various expenses beyond service fees, such as payments to state authorities (court fees, filing fees, enforcement costs, etc.), travel expenses, losses due to delayed recovery, value-added tax (VAT) on the debt collection service and other incidental expenses incurred during the process. However, within the scope of this article, TNTP focuses solely on the fees payable by the creditor to the legal service provider (“Debt collection service fees”) – a type of cost that can be estimated, negotiated and managed through a service contract.

Debt collection service fees are defined as the total amount payable by the party entitled to collect the debt to a company or individual authorized to recover the debt on their behalf. This is a crucial factor that creditors should carefully evaluate before signing a service contract to estimate their budget, avoid unclear or excessive charges and select a provider that suits their needs and financial capacity.

The primary purpose of engaging third-party debt collection services is to help creditors save time and personnel while ensuring that the collection process is conducted lawfully and professionally. Therefore, debt collection service fees should not be viewed merely as an expense but as an “investment” to safeguard the creditor’s financial and legal rights effectively.

2. TNTP’s debt collection service fees

At present, TNTP calculates debt collection service fees according to the following formula:

Total Cost = Service Fee + Legal Fee (if applicable) + Additional Costs (if applicable).

TNTP’s service fees typically consist of two components: a non-refundable fixed fee and a success fee for each case, applied as follows:

• Non-refundable fixed fee: This fee is paid upfront before TNTP commences work. It is fixed and non-refundable, with the exact amount depending on the service package chosen by the creditor.
• Success fee: This fee is payable to TNTP after the creditor successfully recovers any amount from the debtor. It is calculated as a percentage (%) of the actual amount recovered from the debtor and/or third parties involved.

Regarding the legal costs and additional costs:

In certain cases, TNTP may advance and prepay necessary expenses during the debt collection process on behalf of the creditor. The creditor will subsequently reimburse these amounts based on official receipts, invoices or fee notifications issued by competent authorities or organizations.

• Legal costs: These include court fees, arbitration fees, enforcement fees and other expenses incurred during litigation, dispute resolution or enforcement proceedings. Such costs are determined according to the official fee schedules of State agencies or arbitration centers.
• Additional costs: These refer to expenses incurred during service performance such as file preparation, travel, evidence collection, communication, document delivery, notifications and other administrative costs. Similarly, these may be advanced by TNTP and later reimbursed by the creditor upon presentation of valid invoices and supporting documents.

In addition, TNTP currently offers discounts for: (i) Creditors using TNTP’s services for two (02) or more cases; (ii) Debts incurred within 180 days; or (iii) Cases successfully recovered within 180 days from the commencement date.

3. Factors that influence collection costs

Several factors directly impact debt collection service fees, including:

• Debt value and duration: Newer and higher-value debts are generally easier to recover, resulting in lower fees. Conversely, older or difficult debts increase costs due to complexity.
• Financial capacity and creditor’s priority: Businesses with strong financial capability or a need for expedited recovery often choose comprehensive service packages with higher costs. Conversely, if cost saving is the priority, the creditor may opt for a basic package, which has lower fees but may result in longer processing time and a lower recovery rate.
• Type of debt: Debts arising between enterprises tend to be more complex than personal debts because they involve higher values, business contracts and extensive documentation. Determining payment obligations, reconciling accounts and proving contractual breaches require more time and resources. When disputes arise, recovery may involve multiple stages: negotiation, litigation and enforcement. Hence, business-to-business debts typically incur higher service costs.
• Timing of collection: Acting early (immediately after default) enhances recovery chances and reduces costs. Delays often lead to increased legal and administrative expenses.
• Geographical factors: If the debtor is located far from the debt collection organization’s office, additional expenses such as travel, engagement with local authorities, information verification and filing at various jurisdictions will arise. Thus, the greater the distance, the higher the associated costs.

Accordingly, debt collection service fees are not fixed but depend on various objective and subjective factors such as the debt amount, case complexity, debtor cooperation and the scope of work required. Therefore, creditors should carefully assess both base fees and potential additional costs to ensure transparency, cost-effectiveness and alignment with their financial capacity.

4. Tips to optimize your debt collection costs

Creditors can actively minimize debt collection service fees through several measures:

• Early collection actions: Creditors should begin recovery efforts themselves or through a third party as soon as a debt shows signs of default. Taking prompt action increases recovery success rates and reduces service costs. Early intervention also allows flexible negotiation measures, avoiding costly litigation or enforcement later.
• Negotiating service fees: Before signing a service contract, creditors may discuss and negotiate fee structures with the debt collection provider. Many firms are open to adjusting rates or offering discounts for clients with multiple cases or long-term contracts, helping businesses reduce overall costs.
• Document preparation: Providing complete documentation such as contracts, invoices, payment receipts and debt reconciliation statements ensures a solid legal foundation for recovery. Clear and sufficient information accelerates case handling and minimizes additional verification costs.

A systematic debt management approach that proactively monitors receivables and maintains close coordination with debt collection service providers will help enterprises optimize expenses while achieving effective recovery outcomes.

5. Debt collection services in Vietnam

In Vietnam, debt collection services are legally performed by law firms and practicing lawyer organizations. These entities are authorized to represent clients in negotiations, lawsuits, legal proceedings and enforcement actions. When using such services, businesses not only receive procedural support but also benefit from strategic legal advice that minimizes costs.

Under the Law on Lawyers 2006 (amended 2012), only licensed law practice organizations are permitted to provide legal services, including debt collection. This ensures that all recovery activities are transparent, lawful and compliant with criminal and administrative regulations.

TNTP International Law Firm & Associates is a legally established law firm in Vietnam, fully qualified to provide legal debt recovery services for both domestic and foreign clients. With over 10 years of experience handling high value debt recovery cases, TNTP has proven its expertise in this challenging field. TNTP’s team of lawyers is professionally trained, skilled in analysis and capable of developing tailored recovery strategies for each case. TNTP applies various approaches such as negotiation, mediation, litigation and arbitration to shorten processing time, reduce costs and protect clients’ legitimate rights and interests to the fullest extent.

Debt collection service fees are a crucial factor that must be carefully calculated and prepared before deciding to use the service. Although various fees may arise, if creditors choose a reputable provider, act promptly and provide complete documentation, costs can be significantly optimized. Hopefully, this article helps creditors gain a comprehensive understanding to manage and control debt collection expenses effectively, thereby enhancing financial performance and supporting sustainable business growth.