The term “Commercial debt 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 debt collection.
Difference between Commercial debt collection (business debt) and Individual debt collection (consumer debt)
One may think, a debt is a debt, then why do we classify it as a Commercial or a Consumer (or Individual) debt. Here are the main reasons.
1. Fair Debt Collection Practices Act (FDCPA): These are comprehensive guidelines which the U.S. government has specified for collection agencies that must be followed while collecting the debt. The strict laws of FDCPA, attempts to protect debtors from any illegal harassment techniques by a debt collector to a large extent. Some states have their own set of laws but largely follow the federal FDCPA version. There are additional laws what may be applicable, ex: Health Insurance Portability and Accountability Act (HIPAA), Fair Credit Reporting Act (FCRA), Telephone Consumer Protection Act (TCPA) and Service members Civil Relief Act (SCRA).
Important Note: Commercial debt collections are NOT subjected to FDCPA, this law applies to only individual debt collections. FDCPA includes rules which prohibit harassment, threats and deception. Although there are fair collection guidelines which apply to commercial collections too, but they are not as stringent as Individual debt collections/FDCPA.
On the other hand, some examples of individual debts include – an individual’s own unpaid credit card bills, mortgage bills, student loans, medical debt, etc. They do not come under Commercial debt category. Due to the higher risk involved in collection of individual debts, collection agencies usually charge a higher fee for individual past due cases than commercial debts.
2. In Commercial debt collection, every case is treated differently. The scenarios change depending on the type of business. For example the approach involved in collecting from an hospital will be different from a car dealership. Collection agencies attempt to keep a delicate balance between recovering the money, at the same time attempting to maintain a good relationship between the two parties (if possible). The average balance of commercial accounts is much higher when compared to individual debts.
3. A 30 day dispute period is not applicable to Commercial Collections
When the debtor is type consumer, a collection agency provides a 30 day dispute period regarding the debt. However commercial collections can start right away.
4. Commission fees is lower for Commercial Collections:
Commercial Collections contingency rates vary from 10% to 50%. For accounts over 500K you can negotiate a collection fees of about 10%. For accounts about 50K fees is around 20% and for accounts lower than 1K, its 50%. For Individual Collections, it is around 35% to 50% and averages around 40%.
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.
- Commercial collections are usually registered with International Association of Commercial Collectors (IACC). Collection agencies dealing with consumer debt are registered with Association of Credit Collection Professionals (ACA)
Overall the laws presume a business owner to be more savvy than the average consumer. It’s assumed that business owners have a higher level of sophistication and accountability. The primary advantage of hiring a commercial debt collection agency is their extensive knowledge of laws that pertain to your case. Attempting to collect money yourself, while staying within the laws can be a very challenging task.
Debt collection process often includes these steps:
Delegating the case to a law firm ( or an in-house law firm), background investigation, skip tracing, credit analysis and payment plans. If your debtors are from all across USA, its is better to work with an agency that is licensed, bonded and qualified to collect in all 50 states. Ask if your Collection agency follows the latest data security techniques, encryption and technology.