If you have ever tried to terminate a subscription or service contract, you’ll know there are normally early termination fees. In a society that promotes best-value thinking, cancellation fees deter a never-ending churn of switching providers, confusing directors and employees alike. The fees also serve to protect the creditor from lost income and unrecoverable upstream costs. Termination fees are dependent on factors such as intellectual property access, loss of profit, ability to resell, and cost of sales.
Based in the West Midlands, our client provides health and safety consultancy services for the environmental management industry. Customers are committed to an annual contract with the full amount payable upfront. In the rare event a contract is cancelled, a percentage rebate for the remaining months is issued. Upfront payments became less viable for new customers when the pandemic first struck. Instead of losing revenue to their cash-rich competitors, our client elected to adapt in order to survive. They began offering twelve monthly instalments on new contracts to make services more affordable for customers in uncertain times. To balance the risk of never-ending customer churn, the cost of termination was the balance of any remaining months of the contract.
Olive Branches
As a provider of water testing services, the debtor had a need for health & safety consultancy expertly provided by our client. It made financial and commercial sense to sign the annual contract and make monthly payments. Five months after the signature, the debtor activated the termination clause, citing the economic downturn. Although entitled to the remaining £1.3K, our client was not unsympathetic to the debtor’s financial predicament. A temporary suspension was offered whereby the debtor would resume instalments in return for service provision at a later date. This was immediately declined. Unperturbed and offering another olive branch, the client proposed termination for the equivalent of one month’s fee. With the debtor unresponsive, the conditional offer was resubmitted, and a deadline was set. Electronic records confirmed the offer had been received.
Maximum Result
When the deadline lapsed and Advocate Commercial Debt Recovery was instructed, it was nine months since the contract’s signature. The termination fees were indisputable, as was the goodwill shown by our client in repeatedly proposing a lower exit cost. Upon contact from Advocate, the debtor immediately paid for one month. Our action continued because the settlement offer had expired, resuming the client’s entitlement to the full contractual termination fee. With the debtor now claiming not to be aware of the termination, contract or settlement offer, it was time to politely remind them of the dialogue our client submitted at the time of instruction. Tactfully brought back up to speed, the full £1.3K plus statutory late payment charges was received. There had been no question over the service our client had provided or the value it added to the debtor’s business. It’s possible the debtor simply did not have the one-month instalment fee to pay at month five. Given the debtor’s industry was no longer buoyant at month nine and the ease at which payment was suddenly produced, it is more likely full payment was a fallback if they were unable to escape any liability. Speculation aside, Advocate were able to recover payment in full for the client as per their contractual right.