Collection & Attorney Fees and Interest in Commercial Collections


At The Kaplan Group our goal is to try to recover your money without going to court. We do this on over 97% of our successful claims.  However, sometimes litigation is necessary. Clients often wonder if they can add our collection fees, or attorney fees, to the amount to be collected. These costs can only be added in specific situations.

Collection Costs
If there is a contract between the parties that indicates collection fees are due in the event of late payment, then collection fees can be included. Keep in mind that just having this provision on your invoices may not be enough.  Many states require you to have a document signed by your customer indicating they agree to this specific provision. The Credit Application is the generally the best document in which to place this term. Our free Credit Application handbook explains this and other key terms you should include.  Including this gives us more leverage during the pre-litigation collection phase because we have an attorney fees provision applying if we have to go to court.

Attorney Fees
Attorney fees may be awarded if there is an attorney fee provision in a contract. If the attorney fees clause is mentioned in documentation but not in a signed contract, the judge has some discretion as to whether to add or not add attorney fees.  If there is no attorney fees clause then in most jurisdictions they cannot be added.

In many jurisdictions, the amount of the attorney fee award is not based on the contingency rate but on a schedule.  For example, on a $20,000 case, the attorney fee award may be $700 to $1,000, or less than 5% of the principal amount while the contingency rate may be 33%.

Even if attorney fees are awarded and added to the judgment, we first need to collect 100% of principal, interest and court costs.  Since a large percentage of litigation cases result in a voluntary payment for a reduced amount, it is rare to collect 100% of the original judgment amount, which included interest and court costs, in settled cases. Therefore, we often do not collect attorney fees even if they were awarded.

Some of the contingency attorneys we work with structure their quotes where they get to keep 100% of any attorney fees that are awarded and collected after all principal, interest and court costs are recovered.  Their logic is this extra incentive to collect the attorney fee award, which they keep in full, gives them incentive to get the interest and court costs on top of just principal so they can then pursue this ‘bonus’ for themselves.  Clients still control whether to accept voluntary settlements or to pursue court ordered judgment collection efforts, but this extra incentive for attorneys can help our clients.

As a result of all of these factors, we tell clients to never expect any recovery of attorney fees when considering whether they should sue or not sue using a contingency attorney.

Judgment Interest and Court Costs
Although collection costs are not generally included in a judgment, a judge will generally include:

  • Pre-judgment interest
  • Post – judgment interest
  • Initial court costs

Pre-judgment interest is calculated from the original due date to the date the judgment is issued at either the interest rate stated on invoices or in a contract.  If there is no mention of interest on the invoices or in the contract, then a judge may  use the statutory rate. The statutory rate is different for each state, but is often between 6% and 10%. The judge may also determine that the creditor is not entitled to pre-judgment interest if there was no mention of interest in the agreement between the parties. 

Post-judgment interest generally will be based on the same criteria and accrues from the date of the judgment until it is fully paid. If the interest rate on invoices or in contracts is unusually high or above the usury limit, the judge may not allow it or may limit interest to a lower rate.

We add interest to every claim and collection fees when we can, and this does help with our negotiation leverage but at The Kaplan Group we only collect interest in about 10% of our claims.

Pre-Litigation: Collecting Interest and Collection Fees
You may wonder why we rarely collect interest or collection fees even when they are in the contract.  The bottom line is that if a debtor offers to pay the principal balance in full on a voluntary basis, but only if our client waives interest and collection fees, we have never had a client reject this offer and instead litigate.   Litigation has up-front costs, can take months to years, has a higher contingency rate, and an uncertain outcome.  The right business decision typically is to take the voluntary payment of principal only, instead of pursuing additional amounts through the courts.

Other collection agencies may tell you that they get interest and collection fees on a regular basis.  If they are collecting credit card debt, where these fees are essentially the creditor’s business model and the consumer knows that up front, the debtor expects to pay interest and will.  But on standard B2B claims, all collection agencies run into the same issue of a business negotiating to not to have to pay fees.

It’s obviously frustrating to have spent months trying to collect money and to know that you are entitled to interest and fees that you may not be able to collect. However, at The Kaplan Group, our goal is to help keep you focused on your ultimate goal, the health of your business. We’re determined to help you collect as much money as you can with as little effort, cost and uncertainty on your part.


About The Author:

Dean Kaplan is Principal at The Kaplan Group. Dean's exper­tise is widely rec­og­nized in the debt col­lec­tion indus­try. His advice has been pub­lished in a num­ber of indus­try newslet­ters such as Credit Today and InsideARM and he is a fre­quent speaker at indus­try events.

Menu Title