In a softening economy, we often witness an increase in commercial litigation, especially in the area of collections. Clients are sometimes surprised to find, however, that under American law there is no automatic right to also include a claim for your counsel fees expended in connection with collecting a bad debt.
Whether your business sells its goods and services on a contract-by-contract basis, or on open account, we recommend having the customer sign an agreement wherein all of the basic terms of the transaction, including quantity, price, finance charge and collection fees, are clearly spelled out. Absent a specific agreement on the part of the customer, attorney’s fees generally are not recoverable.
Utilizing a contract containing a clause requiring the customer to pay attorney’s fees in the event of default accomplishes two important goals: First, it takes away the incentive for the customer to attempt to delay payment by dragging out fruitless litigation. Secondly, assuming a solvent customer, it allows you to recoup your own cost of collection.
Remember, get it in writing up front and you may avoid a pain in the rear later.
— Walt Reed