Here’s the situation: You run a profitable, service-industry-based small business, driven by human capital, with low overhead, and even lower startup costs. Things are going well, until you realize that some of your outstanding accounts are past due. While you’ve tried sending your customer debt collection letters, they have fallen on deaf ears. After speaking with several senior colleagues, you decide you want to try and have a commercial collection agency pursue your debts. Also known as business to business debt (B2B), these agencies specialize in recovering debt payments owed by one business to another. Below you will find information on how commercial collection agencies work, who regulates them, and where to go for more information.
Commercial Collection Agencies: How Do They Work?
The Federal Reserve recently cited that business debt for 2016 was $13.4 trillion. That’s a lot of debt, and sometimes it goes unpaid. Enter the commercial collection agency. These agencies are not typically employees of the creditor or small business attempting to collect from a debtor. Rather, they are third party contractors to the small business and only get paid when they collect on the debt.
Keep in mind, a commercial collection agency differs from a consumer collection agency based on who they are collecting from. A commercial collection organization will be collecting from other businesses who’ve failed to pay on accounts, while consumer collection agencies pursue individual consumer debt owed to businesses. While these agencies have a high success rate in collection, they often charge large sums of money from what you collect from the business debtor, sometimes as much as 50 percent.
B2B Commercial Collection Regulations and the FDCPA
You may be wondering what restrictions are placed upon commercial collection agents, if any. Consumer collection tactics are highly regulated under the Fair Debt Collection Practices Act (FDCPA), implemented by Congress to eliminate abusive practices of third-party debt collectors. However, the FDCPA does not apply to commercial debt collection. This means that debt collectors may be able to implement some of the practices in their commercial debt collection activities that are otherwise banned under the FDCPA.
Does that Mean Commercial Debt Collectors Are Unregulated?
No, there are rules in place but they come from state laws and regulations. Some states require a commercial debt collector to be licensed and bonded before performing any collection activities within the state. Typically this means the agency must submit an application, provide financial disclosures, proof of bonding, and payment of licensing fees (although this differs by state).
There is also an organization known as the Commercial Collection Agency Association (CCAA), which certifies members after a rigorous application process. While the CCAA isn’t a governmental body and doesn’t have power over non-members, it still has considerable clout in the field and being a registered member has numerous benefits including providing credibility to the collection agency.
Commercial Collection Agency: Related Resources
Learn More About Debt Recovery Efforts
If you are really serious about collecting on B2B accounts, you’ll want to know the law and what methods are available to you. You can use a commercial collection agency, but before you do, consider contacting a knowledgeable attorney in your state. A skilled collections lawyer can explain to your options, carefully describe the law, and what your next steps might be.