| 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 a 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 |
| New CFPB guidelines are not applicable | They came into effect on Nov 21, 2022 |
| Credit reporting to Dun & Bradstreet, Experian Business, Equifax Commercial and Creditsafe | Credit reporting to Equifax, Experian and TransUnion |
| More complex negotiations | Relatively less negotiations |
| Average balance higher | Average balance lower than commercial |
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The term “Commercial Collections” refers to the debt collection activity where the debtor is a business entity. The 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, ” why do we classify it as a Commercial or a Consumer debt? When it comes to debt collections, they are treated quite differently, primarily due to the difference in debt recovery laws instituted by the US Government.
1. Fair Debt Collection Practices Act (FDCPA): These are comprehensive debt collection laws that the U.S. government has specified for collection agencies. They must be followed while collecting the Consumer debt. The strict laws of FDCPA protect 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 that 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 patient information, and collection agencies should securely handle the data.
Important Note: Commercial Debt Collection is NOT subjected to the FDCPA; this law applies to only Consumer Debt Collections. There are a separate set of fair debt collection guidelines which apply to commercial collections, however 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 for 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 differ from that of a car dealership. Collection Agencies maintain a delicate balance between recovering the debt and maintaining good business terms between the 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 the “verification of debt”). However, a commercial collection agency can start the recovery process right away.
4. The commission fee is lower for Commercial Collections:
The contingency fees of a commercial collection agency vary from 10% to 50%. For accounts over $500K you can negotiate a collection fee of about 10%. For accounts about $50K, the fee is around 20%; for accounts lower than $1K, it’s around 50%. It is always around 35% to 50% for Consumer Collections 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 over 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)
The primary advantage of hiring a commercial collection agency is their extensive knowledge of business laws. 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.
Attempting to collect the money while following all the debt collection laws can be challenging for normal people.
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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 across the USA, it is better to work with a nationwide collection agency licensed, bonded and qualified to collect in all 50 states. Check if your commercial collection agency follows the latest data security techniques, encryption, and technology because, in case of data leaks, you may be held liable by your own customers.