Commercial Collections: B2B Collections
Consumer Collections: B2C Collections
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 debt 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 the debtor 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 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 subjected to Health Insurance Portability and Accountability Act (HIPAA).
Important Note: Commercial Debt Collections are NOT subjected to 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, but they are not as stringent as Consumer debt collections (primarily the FDCPA law).
Examples of Consumer debts include – unpaid credit card bills, mortgage bills, student loans and medical debt of an individual. Due to the higher risk involved in collection of Consumer debts, collection agencies usually charge a higher fee for Consumer collections than the Commercial ones.
2. In Commercial debt collection, every case is treated differently. Scenarios change depending on the type of business. For example the approach involved in collecting money from an hospital will be different from that of 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. 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 is not applicable to Commercial Collections
When the debtor is type 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. 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 around 50%. For Consumer Collections, it is always around 35% to 50% and averages around 40%. Even with lower contingency fees, a Commercial Agency is able to make more money per case due to higher balances.
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 business laws.
Attempting to collect money yourself, while following all the debt collection laws can be a very challenging task.
Commercial Debt collection process generally 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 a nationwide collection 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.