If you are in business, there will come a time when you need to enlist the services of a collection agency to help recover your past-due accounts. So how do you find the right one? First, you must determine if the money owed to you is Consumer debt or Commercial debt.


What is Commercial Debt?


Commercial debt is money owed by a company to another. No person is responsible for the payment of the debt. Often, there is a binding contract between the two businesses, one providing a service or product and the other being the recipient of the service or product. Agreements may be in writing or verbal.


Commercial debt usually involves more significant amounts and complex circumstances that can impact your company’s cash flow if not paid on time, leading to financial issues for your business. Collecting commercial debt may also involve the time and energy of numerous people within your company that have more urgent tasks to perform. 


What is Consumer Debt?


Consumer Debt is money owed by a person. When collecting a consumer debt, you usually deal with just one person – the debtor. The collection of consumer debt is a very highly regulated activity.  


The Fair Debt Collection Practices Act [FDCPA]


The Fair Debt Collection Practices Act protects consumers from unscrupulous collectors looking to use any means possible to collect the debt and to penalize those beyond established ethical guidelines. In addition to the FDCPA, many states have enacted versions mirroring the FDCPA, and others go far beyond with even more protection for consumers.


The FDCPA does not regulate Commercial collection agencies. If the agreement with your business customer also includes a personal guarantee, the debt is still commercial. A commercial collection agency would be the appropriate entity to place this account for collection since they have special expertise in dealing with businesses.


Collection Agency Licensing Requirements


While various State and Municipal laws require licensing of consumer collection agencies for each state in which they operate, the same is not true for commercial agencies. 


Most State licenses for commercial collection agencies are reciprocal throughout the United States. Using an unlicensed agency can be devastating for your business. And debtors may not feel comfortable sending money to an unlicensed agency resulting in less money recovered for you.


Professional commercial collection agencies also follow the ethical guidelines of trade organizations, including the International Association of Commercial Collectors, Inc. (IACC). Membership in the IACC requires compliance with high standards of practice.


Finally, Choosing the Best Commercial Debt Collection Agency


Don’t pick the first name you find. When choosing a commercial debt collection agency, you will be concerned about how long they have been in business, their capacity to act quickly and professionally on your behalf, and how they will treat your debtors since that is a reflection of you.  


You also want to make sure your receivables receive the best work effort possible. Using an agency that only handles commercial accounts will ensure the best results. Commercial collection specialization delivers better results for you.


Lastly, don’t make the common mistake of focusing on saving a few percent on the agency commission since it is paid only on successful collection. The real question is how successful they are in collecting your type of accounts, and you can find out a lot about that by interviewing their management.