Debts are a regular part of business ownership and management. You may owe debts for products and services, or a client may owe you for products and services you provided. Late payments and outstanding debts can create serious difficulties for debtors and creditors alike.
To protect your business, you should understand commercial debt collection laws and how they affect businesses. You should also learn the business debt collection process and when to hire a commercial debt collection lawyer.
What Are Commercial Debt Collection Laws?
You may be familiar with the Fair Debt Collection Practices Act (FDCPA), which places limits on debt collection activity for consumers. While consumer protection laws limit private debt collection activities, businesses do not enjoy the same protections as individuals.
However, some business debt collection laws exist to protect commercial debtors from dishonest or aggressive collection practices. Commercial debt collectors can join the Commercial Collection Agency Association (CCAA) and become certified by the Commercial Law League of America (CLLA). This organization is non-governmental and has no control over the activities of non-member collection agencies.
Members of the CCAA must adhere to stringent ethics and practice standards. For example, certified debt collectors should communicate and treat debtors in a way that does not compromise their business reputation.
Understanding Business Debt Collection
Managing commercial debts requires a delicate balance. On the one hand, allowing bills to go unpaid compromises your business’ financial stability. On the other hand, you want to maintain a good working relationship with your clients.
Failure to pay a commercial debt can compromise your business’ reputation. When a creditor does not work with you during hard financial times, you could face financial hardship that keeps you from meeting regular business expenses.
If you have attempted to collect on an outstanding debt without success, you may sell the debt to a collection agency, assign the unpaid debt to another party, or sue the debtor for the money they owe you. You may deal with aggressive creditors or commercial collection agencies if you are a debtor. In either case, a commercial debt collection lawyer can help.
What Constitutes Commercial Debt?
Generally, a business has a specific time to pay for products or services they receive. Typically, businesses establish payment periods through contractual agreements, bills, and invoices. For example, statements are often invoiced on a Net 30 basis, which means the buyer should pay within 30 days of the invoice date.
When a business fails to pay on time, they owe a commercial debt. The company that provided the goods or services is considered the creditor, and the business that owes money for those services is the debtor.
When To Take Legal Action
As a creditor, you may try to recoup the debt through a lawsuit. You may sue the debtor for breach of contract, unfair business practices, or negligence. If the creditor has existing assets, such as commercial real estate, you may seek to place a lien on the property.
As a debtor, you could take legal action if you face harassment, defamation, or legal action from a creditor. You may consider filing a bankruptcy petition for cash flow issues.
You may also consider legal action against a commercial collection agency that does not adhere to commercial debt collection laws. Since only debt collectors registered with the CCAA are subject to their rules, your legal options against non-member agencies are limited. However, you may have legal recourse if the debt collection agency uses false information or invalid legal threats.
Whether you are the debtor or creditor, discussing your options with a collections attorney is best.
How Commercial Debt Collection Agencies Work
If you, as the creditor, fail to receive payment from the debtor, you could send the account to a commercial debt collector. Commercial debt collection agencies purchase the debt from you for a fraction of the amount owed. Selling the debt to debt buyers ensures you receive some portion of the outstanding debt, but it is often a small percentage of the total amount owed.
If you are a commercial debtor, you may begin receiving calls, letters, and emails from the commercial debt collector who purchased your debt. You could work with the agency to arrange a settlement or payment plan that suits your current financial situation.
Debt Collection Process
When a business fails to pay on time, the creditor may begin the collection process by submitting a demand letter for payment. The letter outlines the debt details, including:
- Creditor’s name and business
- Debtor’s name and business
- The amount owed for goods and services provided
- Payment options to clear the account
- Notice that failure to pay may result in legal action
- Date by which the debtor must contact the agency or remit payment
If the debtor fails to pay outstanding debts by the date on the demand letter, the creditor may file a lawsuit in small claims court. They may also investigate the debtor’s financial situation to determine whether they have assets in banks, property, or real estate that could clear the debt.
Based on the lawsuit or investigation results, the creditor may negotiate a payment plan or settlement of the debt. The creditor may transfer the account to a commercial collection agency for debt recovery if they cannot reach a settlement agreement.
Get the Legal Advice You Need From a Reputable Commercial Collection Attorney
If you are a commercial debtor experiencing financial hardship or a creditor dealing with unpaid debts, you benefit from working with a commercial collection lawyer. Dunn Sheehan has extensive experience handling complex business litigation.
Our dedicated team can help you determine your best legal options. If we proceed with your case, we can gather evidence and help you negotiate with creditors, debtors, and commercial collection agencies. Should your case go to trial, we will represent your interests in the courtroom.
We understand that commercial debt often occurs when you are experiencing financial hardship. That’s why we offer a variety of fee structures and payment plan options to work around your needs.
Contact our office today to discuss your commercial debt management.