Q.  Are costs associated with fees paid to collection agencies allowable for such items as bad debt and late payments by clients?

A.  The costs associated with bad debts are clearly unallowable.  FAR 31.205-3 says "Bad debts..., and any direct associated costs such as collection costs and legal costs are unallowable."  It is based on the premise that the bad debt related costs are not allocable to government contracts because the government always pays its just debts.

The costs associated with late payments are something else.  There is no prohibition we are aware of against recovering costs related to collecting late payments as opposed to strictly bad debt collection.  It would be a normal cost of doing business where there is no FAR prohibition.  The efforts related to collection of late payments would also include efforts related to collecting government late payments. Of course, costs related to collection agencies may be challenged by government auditors so you would need to demonstrate the costs are related to late payments as opposed to bad debt collection.

{TAG_FORM_TITLE}