|Commercial Collection Agency||Consumer Collection Agency|
|B2B Collections or Corporate Collections
(Both Creditor and Debtor are business entities)
|B2C Collections or Individual Collections
(Creditor is a business and Debtor is a person)
|Lower Contingency Fees||Higher Contingency Fees|
|Higher Recovery Rate||Lower Recovery Rate|
|Less stringent debt collection laws||Strict debt collection laws enforced|
|Customized collection approach for each case||Standard proven techniques, less customization|
|Attorney gets involved early in the collection process||Attorney gets involved in only a few cases|
|No FDCPA, No 30-day dispute period||FDCPA Laws and 30-day dispute period applies|
|IACC accreditation preferable||ACA accreditation preferable|
|Statute of limitations generally do not apply||Federal laws regarding Statute of limitations apply|
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The term “Commercial Collections” refers to the debt collection activity where the debtor is a business entity. A business can be a sole proprietorship, partnership, LLC, Inc, MNC, etc. Commercial debt collection is also called business-to-business (B2B) debt collection.
Difference between Commercial Collection and Consumer debt collection
One may wonder when a “debt is a debt”, then why do we classify it as a Commercial or a Consumer debt. When it comes to debt collections, they are treated quite differently. Here are the main reasons.
1. Fair Debt Collection Practices Act (FDCPA): These are comprehensive debt collection laws which the U.S. government has specified for collection agencies, they must be followed while collecting the Consumer debt. The strict laws of FDCPA, protects an individual from any illegal harassment from a Collection Agency. Some states have their own set of laws, but most of them follow the federal FDCPA version. FDCPA rules prohibit all forms of harassment, threats and deception.
There are additional laws what may be applicable, ex: Fair Credit Reporting Act (FCRA), Telephone Consumer Protection Act (TCPA) and Service-Members Civil Relief Act (SCRA).
Medical collections are additionally subjected to the Health Insurance Portability and Accountability Act (HIPAA). Creditors can share only limited information about patients, and collection agencies should handle the data in a secure manner.
Important Note: Commercial Debt Collection is NOT subjected to the FDCPA; this law applies to only Consumer Debt Collections. Although there are a separate set of fair debt collection guidelines which apply to commercial collections, they are not as stringent as Consumer debt collections.
Examples of Consumer debts include – unpaid credit card bills, mortgage bills, student loans and medical debt of an individual. Due to the higher risk and effort involved in recovering money from Consumer debts, collection agencies charge a higher fee for Consumer collections than the Commercial debts.
2. A commercial debt collection agency treats every case differently. Scenarios change depending on the type of business. For example, the approach involved in collecting money from a hospital will be different from that of a car dealership. Collection Agencies maintain a delicate balance between recovering the debt and maintaining good business terms between the two parties. The average balance of commercial accounts is generally much higher when compared to consumer debts. Commercial collection agencies are highly specialized in their field.
3. A 30 day dispute period does not apply to Commercial Collections
When the debtor is a consumer, a collection agency has to provide a 30 day dispute period regarding the debt. During the dispute period, a consumer can also ask the Collection Agency to prove that he indeed owns the debt (also called as “verification of debt”). However, a commercial collection agency can start the recovery process right away.
4. The commission fee is lower for Commercial Collections:
Contingency rated of a commercial collection agency varies from 10% to 50%. For accounts over $500K you can negotiate a collection fee of about 10%. For accounts about $50K fees is around 20% and for accounts lower than $1K, its around 50%. For Consumer Collections, it is always around 35% to 50% and averages around 40%. Even with lower contingency fees, a Commercial Agency can make more money per case due to higher balances. If a commercial debt is older than one year, 5% extra fees may be charged.
5. Other notable differences:
- Bankruptcy laws are different for individuals and companies.
- The way Credit Check is run on individuals vs companies is vastly different.
- A good commercial collection agency would likely be registered with the International Association of Commercial Collectors (IACC). Collection agencies dealing with consumer debt are affiliated with the Association of Credit Collection Professionals (ACA)
Overall the laws presume a business owner to be savvier than the average consumer. It is assumed that business owners have a higher level of sophistication and accountability. The primary advantage of hiring a commercial collection agency is their extensive knowledge of business laws.
Attempting to collect the money yourself, while following all the debt collection laws can be a very challenging task.
The commercial debt collection process generally includes these steps:
Assigning the case to a Commercial debt collector, background investigation, skip tracing, credit analysis, finalizing a collection approach and payment plans. A commercial law firm ( or an in-house commercial lawyer) will get involved if everything else fails.
If your debtors are from all across the USA, it is better to work with a nationwide collection agency that is licensed, bonded and qualified to collect in all 50 states. Ask if your commercial collection agency follows the latest data security techniques, encryption and technology.