Businesses often take on debt for many reasons whether they are expanding, upgrading their equipment, or overhauling their existing infrastructure. Sometimes, however, these debt obligations become too great for them to handle. As a result, they often find themselves at the mercy of commercial debt collection agencies.
Often, however, business owners make the mistake of thinking that they enjoy the same debt protections as consumers. The Fair Debt Collection Practices Act (FDCPA), however, was enacted to help consumers and, therefore, does not apply to businesses. Nevertheless, business owners on both sides of this equation are protected by commercial debt collection laws. The key is for businesses to know which laws apply to their situation.
The Scope of Commercial Debt Collection Laws
Commercial debt collection laws apply to any acts and regulations undertaken for the business-to-business recovery of bad debts. In essence, they protect businesses with debts from unfair debt recovery practices. In addition, these legal statutes were put in place to uphold creditors’ and collection agents’ rights during the recovery process. For this reason, they also govern the activities of debt collection agencies.
When Can a Business Be Sent to Collections?
When a business falls behind on their payments on outstanding debt, the creditor may send the account to collections after attempts to obtain payment. Generally, a creditor has three options if a business fails to remit payment within 90-120 days; it can assign, sue, or sell the debt in question to a commercial debt collection agency.
In this case, assign means that the creditor may grant a third party the right to collect on behalf of the original creditor. Also, it may mean that the third party, usually a debt collection agency, may have the sole right to collect payment on the debt and keep if for themselves.
How Do Commercial Debt Collection Agencies Work?
Commercial debt collectors typically purchase debts owed by businesses for a much lower amount than the outstanding balance in the hope of collecting the full amount from the original debtor.
Because these agencies only make money if they receive payment from the debtor, they tend to be overly aggressive. In addition to repeated attempts to contact the debtor via telephone and regular mail, they may resort to filing a lawsuit.
What Tactics Do Commercial Collection Agencies Use to Obtain Payment?
To resolve a delinquent account, a commercial debt collection agency may pursue any one or all of the following activities:
- Repeated telephone calls: phone calls are the most common method used to contact the debtor. Agencies may call a business number several times throughout the business day.
- Certified demand letters: often the initial attempt to reach out to a business, a demand letter is a formal process that helps the collector if he winds up suing for the balance owed. This letter consists of a statement of the balance, how much must be paid, and a due date for the payoff.
- Negotiations for payment arrangements: sometimes, the original creditors may authorize the debt collection agency to negotiate payment plans with their clients. This may happen in the form of an installment plan, or it might be a discounted payoff if the balance is paid in full.
Some collection agencies may try to reach business owners through email as well as some investigative measures if they are unable to establish contact.
If earlier attempts are unsuccessful, many debt collectors will work with creditors to sue debtors for the past due balance. In addition, if the creditor wins the case, the debtor may also be liable for any collection and legal fees.
Why Should I Hire a Collection Attorney Instead of a Collection Agency?
Collection agencies usually use a one size fits all approach to debt collection that involves sending out computer-generated form letters in batches. While they may follow up their letters with phone calls, many of these are actually robocalls. Nevertheless, agencies will usually lose interest once the chances of success start to diminish. Essentially, they need to operate on a high-volume basis to generate decent returns.
A commercial collection attorney, on the other hand, can give a client the kind of personal attention that his or her case deserves. Furthermore, an attorney with collection law expertise can use the appropriate legal processes to formulate the right strategy for the client’s needs. In addition, an attorney also has the added incentive of building a lasting relationship with a valued business client instead of the one-off approach used by debt collection agencies.