A common question in AR collections is whether you can make the customer pay your collection lawyer. The answer depends on whether there’s a recognized basis for shifting fees. This article will discuss when and to what extent you can recover attorney fees in AR collections.
In AR Collections, The Court Can Grant Attorney Fees If Provided By Contract, Statute Or Court Rule
The general rule in New Jersey is that each side pays its own lawyer, but there are 3 exceptions: you can recover legal fees if provided for by your contract, a statute, or a Court Rule.
The most common basis for fee awards is contractual. Your sales terms should entitle you to reasonable attorney fees if you go to AR collections. These terms will typically appear in your credit application, in a sales or service agreement, or on your invoice itself.
Statutory grounds are less common, but exist for some types of cases. For example, the New Jersey Prompt Payment Act, which governs the timing of payment on construction projects, entitles the prevailing party in a collection action to reasonable costs and attorney fees.
Finally, the Court can also award attorney fees under the Court Rules, for example, where it sanctions a party for frivolous litigation or for failure to answer discovery requests.
In AR Collections, The Court Determines The Amount Of Your Fee Award
When awarding legal fees in New Jersey, the Court determines what it considers reasonable. As a general rule, this means a reasonable amount of time spent by your collection lawyer, multiplied by a reasonable hourly rate.
However, if you’re paying your debt collection law firm on a contingency basis, the Court may adjust the figure upward to reflect its risk of non-payment. When providing for attorney fees, you can stipulate that a given percentage of the balance (e.g., 33.3%) will be deemed reasonable.
By including attorney fees in your sales terms, you can work around the general rule that each side pays its own lawyer. Besides compensating you, this may motivate the customer to pay, so you don’t need to sue for AR collections in the first place.
For more information on AR collections and fee awards for your debt collection law firm, or if you’d like to discuss a specific collection issue, call me at 856-667-1669 or contact me here.
This material is for informational purposes only and should not be construed as legal advice. No person should rely on this information without seeking the advice of an attorney.