Question

Topic: Customer Behavior

Appropriate Finance Charge?

Posted by maryann on 12/4/2008 at 12:58 PM ET 125 Points
With the current economy, I (like many of you I'm sure) am finding many customers defaulting on payments or paying far beyond the net date.

What is a reasonable finance charge? Can it be implemented if it was not included in the original contract (if there was a contract)?

And finally, do you have any experience using collection agencies for amounts above/below $1,000 and if this is worth it?

Thanks!
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RESPONSES

  • Posted on 12/4/2008 at 3:41 PM Member
    You are stepping on the bounds of legal issues here. It all depends on what was in the contract. If it doesn't state all of the terms within the contract and with an approved live/electronic signature then it does not matter. Anything from this point and past I am sorry to say is bound by the terms within. If there is no contract then you can only go by the laws within your state.

    What you can do is send out new terms that will go into effect on a certain date. They can choose to pay off their debt, or abide by the new terms. Within those terms you can include finance charges, late fees, etc. However you have to be very careful calculating finance charges and how they are accrued. All of which must be disclosed in the new terms.

    My advice to you would be to seek legal advice.
  • Posted by mgoodman on 12/4/2008 at 7:57 PM Moderator
    What business/industry are you in?

    You probably need legal advice, but we might be able to share relevant experiences if we know what industry you're in.
  • Posted by maryann on 12/4/2008 at 8:00 PM Author
    I have a small marketing services agency (websites, print collateral, PR, etc.). Most of my clients are small businesses, such as retail shops, gyms and also independent consultants like lawyers, doctors and the like.

    Ironically, the ones who give me the most trouble with payment are the doctors and lawyers... which is why I need to be very careful about how I pursue this.

    Thanks for any help you can give!
  • Posted by michael on 12/4/2008 at 9:45 PM Member
    Actually we always address that in the agreement. We also address how we would handle disagreements about terms.

    Again, not legal advise but I would consider non-payment of fees grounds for you to go after other attorneys/doctors in the area. Our agreement always limits the coverage area. This would void that part of the agreement.

    NOT LEGAL ADVISE!!

    Michael
  • Posted by wnelson on 12/4/2008 at 11:27 PM Accepted
    Maryann,

    Thank you for raising this question! I have had a few clients lately discussing delinquent paying clients - it's a hot topic.

    How I advise them is that, first of all, establish a payment process within your company. This is important for two reasons: First, obviously, you can communicate your process to your clients at the time when you begin doing business. If your process says that payment is rendered upon delivery of product or service, then they know this is the way you do business. Second, by defining what you do at a) delivery of service, b) At the date plus one day after payment is expected, c) Payment expectation plus one month, d) Payment expectation plus two months, ... n) the time you turn it over to "legal - well, this makes it official and routine in your mind! By establishing this process, you can transition to "It's not personal, it's just business!"

    At the same time you establish this process (in writing), you can begin implementing it with present clients (and in particularly with clients that are in the "default" position). Even though you didn't promote this process to them, you DID communicate SOME expectation. And they are in default of that expectation. First stage is to let them know formally they are in default and that if this isn't cured, you will turn it over to your legal representatives. And that action will include the furthering of turning it over to collection agencies.

    I am enrolled in Pre-Paid Legal. As part of a small fee per month, I can have my legal team send out a number of letters (from lawyers) to whomever I wish. This is a BIG incentive to most people. If you would like more information on this, contact me off-forum! But, however you accomplish this, a notification from a lawyer is the next action.

    As far as collection agencies - I have a contact with a service that takes care of this. It's a subscription service, but will give you some recourse. Again, contact me off-forum and I'll pass the name off to you!

    Again, the FIRST step to this is to establish a process for your company and implement it as the T's and C's of your agreement. In my case, for instance, I take half to all up front from clients prior to delivery of services. And then implement them. Keep in mind that it's not personal with your clients - it's only business.

    I hope this helps.

    Wayde
  • Posted by maryann on 12/4/2008 at 11:30 PM Author
    Thank you Wayde. Well thought, planned and spoken. That does help.
  • Posted by wnelson on 12/4/2008 at 11:33 PM Member
    My pleasure, Maryann. Good luck with this.

    Wayde
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