THEY DIDN’T PAY ON TIME, SO I WANT INTEREST
Every business owner has folks that owe them money. Generally, we refer to these people as customers. And those that pay on time are a blessing and those that do not pay on time are a problem. If businesses were able to predict the customers who would be a slow pay, they undoubtedly would make different choices about who they will do business with. But, everyone, eventually, winds up in a slow pay situation. It would be nice to collect interest on your money, but can you?
There are two ways that this might be done. The first is to provide for interest on past due monies as a matter of contract. If your business deals with consumers rather than other businesses, the charging of interest is highly regulated as a matter of federal and state law. It cannot be safely charged without compliance with those statutes and this includes some fairly elaborate disclosures that must be made to customers. The failure to observe these regulations generally imposes liability for damages and for the payment of the customer’s attorney’s fees in the case of a violation. And, courts will generally award fees, well in excess of actual damages, incurred in the enforcement of these statutes against businesses. If your business is dealing primarily with consumers, you really have to ask yourself whether or not charging interest will ever be worth the regulatory headaches. That usually comes down to an issue of the dollars involved.
However, if your business generally deals with non-consumers, your options are only limited by usury or loan sharking statutes. Provided you have contracted for interest in your initial documentation, you should be fine if you do not violate these limits. However, note the word “initial”. Too often businesses try to justify the collection of interest by placing it on a bill that goes out after goods or services have been provided. Usually, this is too late to be effective and enforceable.
Two final points. Note that compounding of interest is generally not permissible. And usury limits are generally governed by the state where the customer is located, although this might be modified in the initial contract.