AON Knowledge Library

Sample Debt Collection Policy

One of the biggest problems facing our members is service charge debt. Few directors realise the weight of the problem when they are first elected to the board and it can be daunting to try to figure out where to start, especially if you have a lot of debt outstanding from the past.

The first thing you need is a clear debt collection policy. It’s important to have this so that debtors know the process you will follow to recover the debt. It’s also important for owners who do pay so they know that you’re doing your best to get the service charge from everyone. The last thing you want is paying owners getting discouraged when they see others not being pursued!

To get you started, here’s the policy that one of members uses:

* Invoices are issued at the same time each year. This allows owners to plan ahead.

* On the invoice, they are given a definite deadline. Payments must be made in full or arrangements for a standing order or direct debit must be made by this deadline. If they’re paying by standing order, they must notify the agent of this before the deadline.

* Three weeks after the deadline, the Chairman and Treasurer of the management company meet to determine who has not paid in full or notified the agent that they are paying by standing order. In this case, they will have interest applied to their account. The agent issues a new service charge demand with the interest added.

* In most cases when the member receives the letter advising that interest has been charged they make arrangements and the interest is removed.

* Five months after the invoice was issued, the Chairman of board meets the management company solicitor and if no payment was received by this date, a 14 day warning letter is issued.

* If no payment or contact has been received after two weeks, the management company instruct the solicitor to proceed with legal action.

* If the owner contacts them during this time, some negotiations may take place. Interest can be dropped if the board want but legal fees incurred are never dropped since it is unfair to expect paying owners to cover those costs.

The management company in question have, over five years, gone from almost €600,000 debt to a very healthy sinking fund. They attribute this in part to their debt collection policy and partly to their good working relationship with their a solicitor -a small company who do not specialise in debt collection and also perform other legal work for them.