Business debt collection laws

Helene Mueller
eCollect support team

Business debt collection laws are legal statutes, which protect businesses in debt against unfair debt recovery practices and vindicate creditors’ and collection agents’ rights during the recovery process. Such laws also regulate and control DCAs’ (Debt Collection Agencies) activities and proceedings throughout the collection process. Commercial debt collection laws generally cover all acts and regulations that apply for business-to-business recovery of bad debts. A business debt is also familiar under the term commercial or corporate debt. This monetary liability derives from a loan granted by a company to another business organisation under strict terms of a binding business credit contract. It is mandatory for the borrower to recover the amount lent before a specific deadline. If he fails in transferring the sum in time, the borrower becomes a debtor and the creditor has the right to pursue payment from the business in debt.

Commercial debt regulations

Under different debt collection acts, both creditor and debtor have explicitly defined rights. There are also forbidden practices, which are not tolerated by any law. Although the acts differ between countries, there are world-wide acknowledged regulations. Typically a creditor collecting their debts, or a debt collection agency acting on their behalf, has the following rights during the debt recovery process:

  • A DCA or a lender can legally start a collection process, when a past-due payment appears. According to law a creditor can transfer the default profile to a debt collection agency after an informative letter in writing addressed to the debtor. According to some laws (e.g. the Office of Fair Trading for United Kingdom and U.S. Fair Debt Collection Practices Act) a creditor is not allowed to charge the debtor a DCA’s collection fee, when collecting their own debts on behalf of their own company’s trading name.

  • When sending written reminders by post, letters of demand or letters before legal action, the creditor or the DCA acting on their behalf must include only valid and verified information. Any false or invalid data or unreal trading name is considered as breach of legal acts and is punishable by law.

  • A creditor or a collection agent operating on their behalf can use professional help from bailiffs or debt solicitors, who can perform seizure of debtor’s belongings or transfer debtor’s case to local or international court. When the debt is owed by a business organisation, a wage garnishment cannot be imposed, but the lender can demand from court a property distrain on an office or a building (if the debtor owes such). Confiscation of office equipment can also be carried out by a legal representative, if pre-legal collection methods do not result in successful debt amount recovery. Apart from these legal proceedings, a creditor or a collection agent cannot request an arrest, and cannot threaten the debtor with such actions, as a subject of debt cannot be put under arrest for unpaid bills or bad debts.

  • A debt collection agency or a lender is not allowed to threaten a business debtor with legal process that cannot be performed or will not take place, such as: wage garnishment, seizure of debtor’s belongings, etc.

National & transnational business debt collection laws

Depending on whether the business debtor is located in the same country as the creditor, or the country is different than lender’s area of position registration, the commercial debt is to be collected respectively on local or international level. If the business debt falls under national country regulations, the debt recovery agency and the creditor have to comply with regional or state laws.

Although in U.S. the main business debt collection laws regulator is the Fair Debt Collection Practices Act- the FDCPA, it does not apply to commercial debts, but only to individual late payments. It specifically refers to personal and household debts, deriving from consumer loans. Therefore this act cannot regulate the activity of agencies, collecting business debts. As in U.S. no federal laws control commercial debt recovery, there are other acts, statutes and organisations, managing the commercial debt collection process: the CCAA- Commercial Collection Agency Association (ext. link 6), controlling certified commercial debt recovery agencies; the Commercial Law League of America, which improves and regulates the CCAA (ext. link 7); etc. For each U.S. state, there are also different commercial debt collection statutes, e.g. for Utah: source
; for South Dakota: source
; etc.

In UK regulators for a corporate debt and commercial debt recovery are: the Late Payment of Commercial Debts Act 1998 (ext. link 8), acting under the jurisdiction of European’s Late Payments Directive (source:
); the Late Payment of Commercial Debt Regulations (ext. link 9), again implementing the same EU Late Payments Directive, also known as the 2011/7/EU Directive; etc.

Used literature & external links