Collection of Costs

A collection cost is the cost incurred to collect debt that is owed, a process called debt collection. This could include expenditures for hiring a collection agency. Some contracts and regulations prescribe liquidated damages for collection costs. When collection costs occur, the debtor has pay off debt to get the collector out of collection cost.

When a consumer borrows money, finances a purchase or applies for a line of credit, he usually signs an agreement to repay the money borrowed, with interest. Most such agreements include default provisions, outlining the steps the lender may take if the borrower doesn’t pay the debt as agreed. The default provision usually contains a clause that provides for the borrower to pay the collection cost that is, all costs incurred by the lender in attempting to collect the unpaid debt.

As long as the borrower pays at least the minimum amount due, on time, the loan is considered to be in good standing. It generally takes a while before a creditor considers a loan to be in default such issues as a single late payment don’t generally lead the creditor to declare the loan in default. Generally, though, if a borrower misses two consecutive payments, most creditors will declare the loan in default and trigger the collection process.

When lenders contract with outside collection agencies to collect a defaulted debt, the collection agencies keep track of the costs they incur in collecting the debt. The postage paid to mail a collection notice, for example, is one such collection cost, as is the cost of making calls to the borrower. In many cases, though, the collection agency will simply add a flat fee or a percentage of the debt to be collected rather than itemize expenses.

Another collection cost is attorney’s fees. If the collection agency is unsuccessful in collecting the debt, the original lender will refer the case to an attorney, who will continue collection efforts, using the threat of a lawsuit to persuade the borrower to pay. The attorney generally has the right to negotiate with the debtor, and the amount under negotiation is the total amount owed to the lender plus the collection costs added by the collection agency and the attorney. If the case goes to court, the amounts are less likely to be adjusted through negotiation. If the lender’s attorney wins the case, the debtor is ordered by the court to pay the amount due, which is generally the full amount owed to the lender, plus the attorney fees and court costs.

For every job a job card is maintained, recording all expenses regarding materials labour and overheads from cost records. Actually, it is a cost sheet of a specific job.

The basis of collection of casts would follow the following pattern:

(a) Materials: Materials Requisition, Bill of Materials or Materials Issue Analysis Sheet.

(b) Wages: Operation Schedule, Job Card or Wages Analysis Sheet.

(c) Direct expenses: Direct expenses vouchers.

(d) Overheads: Standing Order Numbers or Cost Account Numbers.

It should be kept in mind that for convenience in collection of costs, all the basic documents will contain cross reference to respective production order numbers.

After completion of the job, the actual cost, as recorded in the Job Cost Sheet, is compared with the estimated cost so as to reveal efficiency or inefficiency in operation. This serves as a guide to future course of action.

It is possible to prepare a job account and debit the same with all expenses incurred on the job and credit the same with the price of the job.

The difference between the two sides would give us profit made on the job.