Many credit application agreements include terms that add finance charges in the event that a customer is delinquent. Collection charges may also be applied if the account is placed for collection.
Sometimes when a client is placing an account for collection with a collection agency they will include finance and collection charges. Based on our experience, we often advise that this is usually not productive and in many cases has the opposite effect.
Here is our guidance when it comes to this matter.
1) Adding finance and collection charges is only an option if you have a written agreement with your customer that allows for these charges.
2) Even with a written agreement, some states do not allow these charges (especially collections charges) to be added. In these states, it can only be added by a court order.
3) If permitted by the state and added, it often has the opposite effect, diminishing the debtor’s willingness to pay. Typically, your debtor owes more people than just you and he lacks the funds to pay everyone. All things being equal, the one not seeking fees is the one that gets paid.
4) Our advice is to not seek these fees at the collection agency level, but only seek them if it becomes necessary to pursue through litigation. At that point you are already in for a long fight, so there’s no real downside. Of course, during our communication with your debtor, we’ll point out that you will seek these costs through the courts if you decide to pursue this in litigation.
We understand this is a frustrating area and you are right in wanting every penny owed to you for product or service provided by your company. However our goal is to give you the best advice to maximize recovery and avoid litigation when dealing with business entities with limited dollars.
In the end, however, these are your dollars therefore, we’ll handle an account any way you request if permitted by law.