Commercial debt can be defined as any debt a owed by a business to another business. Such debts may be owed to a bank, another financial institution, or diverse types of creditors such as investors. Commercial lines of credit are frequently opened for a wide variety of reasons. Business loans are nearly always unavoidable for new commercial ventures, which will have numerous expenses as they start out and build their companies. Established businesses may, meanwhile, go into debt in order to fund unexpected expenses, to grow and expand, or to acquire new assets.
Commercial debt is also sometimes referred to as commercial liability debt, for the simple reason that the business is liable to pay these debts, rather than a private individual. Unless the business is a sole proprietorship, business owners are not personally liable for the debt — meaning debt collectors are not able to recover the debt by targeting personal assets.
While commercial ventures can pursue more avenues to settle debts than private individuals can — such as commercial debt consolidation and counseling to restructure commercial debts and set up payment plans — they also have less legal protection. The Fair Debt Collection Practices Act (FDCPA), which safeguards the interests of consumers in debt, does not apply to business-to-business debts.
Companies who have outstanding and overdue debts with creditors will want to know what course of action will best suit them if they are operating under the threat of commercial debt collection, while creditors also face a dilemma as they decide how to move forward as they attempt to recover the debt owed to them.
How Does the Commercial Liability Debt Collection Process Unfold?
When a business is struggling financially, and meeting debt payment requirements proves to be difficult to the point where the company goes into arrears, typical creditors will initially send payment reminders and try to recover the commercial debt directly from the business in question. Should the debt remain unpaid after these initial debt recovery attempts, however, businesses can expect similar consequences as consumers. After debt payments have remained overdue for 90 to 120 days, most creditors will decide between continuing to pursue the debtor themselves, suing the company, or selling the debt to a commercial debt collection agency. All represent expenses on the part of the creditor.
Commercial debt collection agencies are companies that operate by buying debts owed to original creditors at lower rates than the sum owed. They make a profit solely if they recover the debt, and are therefore both thorough and persistent — commercial debt collectors will not stop until they have successfully recovered the debt. The process of debt recovery is regulated by the Commercial Collection Agency Association (CCAA).
Because selling debts to commercial debt collection agencies allows the original creditor to recover only a portion of the debt owed to them, this course of action is almost never the first choice. Rather, commercial debt collection agencies would be engaged when attempts to encourage the commercial venture that owes the debt have been fruitless, if the company has tried to evade their responsibilities to pay the debt, or if the commercial debt pertains to a large amount of money.
Before a creditor turns to a commercial debt collection agency, other options would accept a partial debt payment or to negotiate restructured loan payments. Businesses who have large commercial debts may, meanwhile, hire commercial debt lawyers to renegotiate debt payments or opt for commercial debt consolidation — in which they take out commercial loans with lower interest rates to eliminate outstanding and urgent business loans — before they consider more drastic options such as declaring bankruptcy.