Collection agencies are capable of collecting finance charges, but they cannot do so in all cases. You must do your part and get your customer to agree to finance charges on past due balances before your provide your product and service. If the customer does not agree beforehand, you cannot add finance charges afterwards.
At least once a week, I receive an invoice for collection that has finance charges added without a contract for them. I have to disappoint them by telling them that because they did not take steps at the beginning, I cannot collect the finance charges.
“But the finance charges are on my invoice,” they tell me. Sorry, but the law says it is not good enough to tell someone afterwards.
First, do you have a contract signed by your customer that states that interest will accrue on delinquent balances? The contract needs to detail when interest will begin to accrue, how it will accrue and confirm that interest rate that will apply. For example: “Finance charge of 1.5% per month will be accrue on all balances over 30 days past due”.
If you do not have a contract you CANNOT charge interest, and your collection agency cannot collect it. It is not enough to put your interest rate on your invoice. You must have it agreed to, in advance, by your customer. As I have stated before, even a simple informal email confirming key details can serve as a contract, IF the customer acknowledges and agrees to it.
Secondly, the type of transaction matters. If your customer is a business, you still need a contract, but you can add interest within reason to all transactions. If your customer is a consumer, you are governed by Title 9-A, the Maine Consumer Credit Code.
Maine law limits the amount of interest you can charge, depending on size of the debt, specifically:
The finance charge, calculated according to the actuarial method, may not exceed the equivalent of the greater of either of the following:
A. The total of:
(i) 30% per year on that part of the unpaid balances of the amount financed that is $1,000 or less;
(ii) 21% per year on that part of the unpaid balances of the amount financed that is more than $1,000 but does not exceed $2,800; and
(iii) 15% per year on that part of the unpaid balances of the amount financed that is more than $2,800; or [1997, c. 727, Pt. B, §3 (AMD).]
B. 18% per year on the unpaid balances of the amount financed.
Generally, 18% a year (1.5% a month) is the most acceptable and commonly used rate.
If you decide to take your case to Maine Small Claims Court, do not assume that you will be awarded interest with your judgment. You must ask the court to award you the prejudgment interest. If your debt plus accrued pre-judgment interest totals more than the Small Claims limit of $6,000, you will only be awarded that amount. And, the Court will have final say on the awarding of interest.
If you do not have a contract, ask the Court to at least award you pre-judgment interest. With a contract, you can accrue the greater of your contract amount or a formula set by the state which is the one year US Treasury bill rate plus 6%. If you do not have a contract, you can still get post-post judgment interest, but will be bound by the formula, which is normally less than a contracted amount.
A Maine collection agency can collect any interest that is legally due or that has been awarded to you. It is very important that you communicate all information regarding this topic so that your agency can get the very best result for you.