Principal amount

What is the principal amount for debt collection?

Most people may be familiar with the concept of principal from the bank when taking out a loan. In the bank, the principal is the total amount borrowed for a car or a house, for example.

When it comes to debt collection, the principal is the original amount of the debt without fees, legal costs and interest.

Example of a principal

As mentioned, the principal is the original amount less any fees and other costs you may have imposed on the debtor.

For example, if you have written an invoice to a customer for DKK 10,000 and charged DKK 300 in reminder fees, the principal amount is in other words DKK 10,000.

Why is it important to know the principal amount for debt collection?

There are several reasons why it is important to be able to identify a principal amount when we talk about debt collection.

As a creditor, you will often be required to disclose the principal amount when you need help collecting an outstanding debt in connection with debt collection.

For example, if you wish to pursue legal debt collection proceedings in the enforcement court, you must fill out a payment demand on the court's website. In this payment demand, you will have to state the principal amount of the amount owed and separately state interest, fees and other costs.

If you want to use a debt collection agency or a debt collection lawyer, they will often ask you to provide the principal amount of the claim, i.e. without your own reminder fees, interest and other costs.