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Business Debt/Late Fees/Finance Charges

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Expert: - 1/11/2010


Question
QUESTION: I live in Minnesota and work for a small Ag business, alot of our clients more or less use us as a bank until their crops are out of the fields, so many of our clients are indebt to us for thousands of dollars and some may not pay for 6 or more months. We do charge an yearly interest rate but we would also like to charge late charges (hoping some people will go to the bank and get a loan instead) if we put in writing and have our clients sign would it be legal to not only charge FI charges but to also charge a 2 to 6 percent late fee every month? Thank you for taking time to review this question.

ANSWER: Shannon,
Yes, you can charge interest and a late fee, as long as your client signed something that stated this BEFORE they incurred the debt. So moving forward if you have them sign a contract that states there will be a fixed dollar amount late fee, and/or an interest % and state specifically what that is, you can legally collect that money. If they don't pay it, because you have the signed agreement or contract you can even sue them for that money alone.
In my experience some customers will pay the invoice but just for the product even though it is past due, this way they are obligated to pay the late fees and interest and if they don't you have legal recourse.
I hope this helps!
Michelle Dunn

---------- FOLLOW-UP ----------

QUESTION: Thanks for your reply just one more question so I get this correct, I want to charge a monthly late fee and finance charge not just a one time late fee since our clients don't pay on their bills for up to 7 months each month they don't pay or don't pay in full and are past due I want to charge them a 1.5% finance charge and a 2-6 percent late fee (depending upon what we decide then have old and new customers sign an agreement)I guess I am just wanting to know the monthly late/FI fees are legal then. Thanks again.

Answer
The interest and late fees that can be charged vary from state to state.  Check with the bank that you do business with and see what their late fees and interest rate is, that is normally what people follow.  If you want to be sure to be charging the maximum interest rate visit your states website to find that information.

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Michelle Dunn

Expertise

As one of the Top 5 Women in Collections, one of the Top 50 Collection Professionals, and winner of the Business Excellence award, I can answer any questions about debt, debt collection, improving business credit, creating a credit policy, enforcing a credit policy and collecting on past due accounts. I can also answer questions in regards to starting a debt collection agency since I have been a bill collector for over 24 years, started and ran my own collection agency for 8 years, and maintain my 12 year old Credit & Collections Association for members of the credit & debt collection industry. I am also the author of the popular and award winning book "Starting a Collection Agency, how to make money collecting money" now on it's 3rd edition. This book has won a the Writers Digest self published award as well as the New York Book Festival Award. I am a repeat contributor to the Wall Street Journal, and have been featured on NPR, CNN, as well as many other national radio and television programs. I have also been featured in national publications such as the Wall Street Journal, Forbes, Smart Money, MSNBC and much more. I have 17 published books to my name and am an accomplished speaker and consultant. I currently write 9 columns for newspapers, magazines and online portals worldwide.

Experience

I have over 24 years experience in debt collection, I started and ran my own collection agency for 8 years and I am the founder & owner of my Credit & Collections Association that I founded in 1998. www.credit-and-collections.com

Organizations
My Credit & Collections Association, I was also a member of the American Collectors Association and Plymouth Chamber of Commerce for 11 years. I am a member of many writing groups as well as my local Women Inspiring Women chapter. I am a member of Know More Media as an expert for their blog on business credit.

Publications
Business NH Magazine, Smart Money Magazine, MSNBC, CNN, Forbes.com, The Wall Street Journal, Home Business Magazine, Entrepreneur Magazine and website, many books, newspapers and television programs as well.

Education/Credentials
I have written 17 books in my collecting money series and one for Entrepreneur Press called the Ultimate Credit and Collections Handbook. My newest book is being published by John Wiley & Sons in May titled, The Guide to Getting Paid, how to weed out bad paying customers, collect on past due balances and avoid bad debt. This book is also being sold to many colleges as a text book.

Awards and Honors
My book Starting a Collection Agency, how to make money collecting money won an award from Writers Digest and the 2007 New York Book Festival in the "How to" category. I have won 2 awards from Dun & Bradstreet and Governor Jean Shaheen. I was nominated as one of the Top 5 Women in Collections twice as well as having been selected as one of Collection Advisor's Top 50 Collection Professionals by my peers.

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