Differences Between Commercial and Consumer Debt Collections

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Commercial and Consumer Debt Collections
Commercial and Consumer Debt Collections

When business concludes that they need a collection agency up their sleeve, it is imperative to conduct some in-depth evaluation.

A fundamental step is to decide whether you need a commercial collector or a consumer debt collection agency. Different laws govern each domain, and creditors must find their feet when moving forward with this decision.

You can’t cut the mustard without acknowledging the difference. This post will allow you to get some perspective and fathom what features define each kind of collection agency.

Consumer Collections

Consumer debt collection involves collection activities between a business (the creditor) and the consumer (the debtor). A typical business-to-consumer relationship is transactional, for example, shopping at a store or paying utilities. Payments happen instantly, or the consumer agrees to pay at regular intervals.

When the consumer does not pay on the transaction or recurring agreement, the business can terminate the contract. Some other options include evicting the tenant, reclaiming the property, or hiring a consumer collection agency.

Some debts they deal in are medical debts, an unpaid mortgage, personal credit card debt, loan balances, etc.

  • Charges

With more than 5000 consumer collection services operating in the United States, the cost of each varies from another. They follow either of the two payment structures:

Flat Fee Collections: It is a fixed amount charged upfront. Regardless of the payments due, the business has to pay a consistent rate for packages that could be first or third party collection agencies.

Contingency-based Collections: It involves making a payment after the recovery. The average fee ranges from 25 to 50 percent of the total amount of debt collected from one account. Some factors that may impact the charges are the age of an account, average balance, and the industry served.

  • Regulations

These debt collection agencies must abide by the Fair Debt Collection Practices Act (FDCPA). An extensive piece of legislature is crafted to protect consumers who owe money from unfair or unethical debt collection practices. They have strict policies against harassment of the consumers, threats, or intentional deceit demonstrated by the collection agents.

They have an allowance to track down the consumers and ask them to fulfill their payment obligations. Yet there are certain limits they must not cross. For instance, credit card companies limit their collectors to make 3-15 calls per account each day.

Commercial Collections

Commercial Debt Collections or business-to-business (B2B) serve the corporate entities who deal with other businesses. Examples include creative agencies, consulting services, freelance agencies, or manufacturing.

These collectors are not typically employees of the creditors nor small businesses trying to collect money from a debtor. Instead, they are third party contractors for small companies and only get their payments when they successfully recover the outstanding amount.

  • Charges

Generally, the Commercial Collection Agencies have a higher success rate as compared to the other kinds. They often charge a massive sum of money from what a debtor owes you. It sometimes goes as high as 50 percent.

  • Regulations

Unlike Consumer Collection Agencies, commercial collectors are not subjected to the Fair Debt Collection Practices Act (FDCPA). However, their collection tactics must follow the legislation provided by the government.

They cannot follow aggressive and unethical practices, but their options are more flexible than consumer collection agencies. Some states require the Commercial Debt Collector to get a license and bond before performing any collection activities within. Typically, it involves application submission, financial disclosures, bonding proof, and paying the licensing fees.

It is imperative to check out the local laws for clarity when going on board with an agency. For example, commercial debt collection Dallas, Texas laws are slightly different than the laws in Seattle.

An organization called the Commercial Collection Agency Association (CCAA) certifies members after a rigorous application process. It is not a government body and doesn’t have power over non-members. Nonetheless, the agency has considerable clout in the field. Being a registered member has numerous benefits that also include providing credibility to the collection agency.

Choosing the Right Agency

Outsourcing the collections to an external agency spare the company its precious time and focus. They can work on maintaining production and growth while the agents handle the hassle.

  • Some questions you should ask before finalizing your agency are:
  • Do you have clients who are continually delaying payments?
  • Does your business sell goods/services to another company?
  • Do you have the bad debt written as unpaid?
  • Are your clients unwilling to pay and contact?
  • Are there invoices that are more than 45 days late?

In case your answer was yes to all of these questions, you are an ideal candidate for commercial debt collections. But if you are a company looking for payments from direct consumers, a well-reputed consumer debt collection agency is your go-to place.

Final Words

In 2017, the CFPB estimated that 70 million Americans reached out about an unpaid amount in the prior year. This shows there is a vast scope in the collections industry. For a reasonable recovery rate from the clients, you should pick a company that has a well-trained staff and fills the payment void in a timely fashion.

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