Many traders in many industries are sick of losing revenue to inconsiderate clients who fail to show up to their appointments or fail to cancel their booking within a reasonable period of time. So when is a cancellation fee justified? And, how can such a fee be charged? Are there limits to this fee? In what circumstances might it apply?

Under What Circumstances Can a Business Charge a Cancellation Fee?

The financial damage caused by clients that don’t show up, or cancel without giving reasonable notice, can be kept to a minimum by including a cancellation policy in your website’s terms and conditions. If you don’t have a website, you might want to consider writing up a Client Booking Agreement. Your business or contracts solicitor can draft either of these documents. If you don’t have a business solicitor, it might be worth having one draft these terms for you, as this will help to limit your liability against potential claims.

In your cancellation policy, you should clearly explain the process for cancelling a booking, the reasonable notice required to fill the vacant time slot, and the fees that may be charged to the credit card if the client has not satisfied the conditions for cancelling an appointment.

For example, events that are beyond the control of either party may make it impossible for a client to arrive on time or cancel within a reasonable time. In these situations, it won’t be reasonable to charge a cancellation fee to the client’s credit card. One example might be extreme weather events that prevent the client from arriving on time for their appointment. This situation is called a ‘frustrated contract’ because one party is unable to do what they agreed to do for reasons outside their control.

When Should a Client Expect to be Charged a Cancellation Fee?

A client won’t be allowed to cancel and expect not to be charged a cancellation fee if, for example, he or she cancels because of inconvenience, difficulty, or price, unless they have given enough notice. This notice should be advertised in your website terms and conditions, or in a booking agreement that the clients are able to easily access and read. It’s important that the requirements of making a cancellation that avoids being charged a cancellation fee are clearly advertised to ensure complete transparency.

Cancellation fees or charges must reflect your reasonable costs. If they don’t, they may be seen as penalties or unfair contract terms, which you generally cannot enforce. For clarity, speak with a business solicitor.

Is the Deposit and Cancellation Fee Reasonable?

Your ability to claim cancellation costs from a customer depends on certain factors. If you charge a cancellation fee, booking fee or administrative charge, it must be reasonable. If it is excessive, it may be regarded, under the Australian Consumer Law, as an unfair contract term.

Typically, deposits are around 10% of the total price of the service. If, however, your potential loss can justify a higher amount, it may be permissible to charge more than the general 10%. If you’re unsure, seek legal advice from a business solicitor.

Have You Attempted to Fill the Vacancy?

Before you charge a no-show client the cancellation fee in your business’ terms and conditions, make some attempt to replace the vacancy. Of course, any opportunity to find a replacement clients limited to the extent of the notice, however, reasonable efforts to replace the client should be undertaken.

If the terms and conditions allow you to reclaim losses from a client, without taking reasonable steps to avoid them, it may be deemed unfair under the Australian Consumer Law. This could include any terms that allow you to claim the total cost of an appointment from a client regardless of when, and for what reason, they cancel the appointment.

When Can You Charge a Cancellation Fee Onto Someone’s Credit Card?

Does your business confirm appointments over the phone? If so, you should advise the customers at the time that their card will be charged if they cannot cancel the appointment within a reasonable time and/or for a reasonable reason, and ensure they agree to this condition. If you don’t, it may be considered an unauthorised transaction under the Australian Securities and Investments Commission’s ePayments Code.

Key Takeaways

Clients that fail to show up to appointments or fail to cancel within a reasonable period of time may be charged a cancellation fee for their actions (or inactions). It is important to remember, however, that there are certain limitations that apply to cancellation fees, and certain circumstances where they will or will not be permitted. If you’d like clarification as to whether changing clients a cancellation fee is reasonable in your business’s circumstances, please in touch with one of LegalVision’s commercial lawyers by calling us on 1300 544 755, or by filling out the form on this page.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.
Lachlan McKnight

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