Business debt recovery

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Helene Mueller
eCollect support team

Business debt recovery classifies a commercial debt collection process provided by a DCA (Debt Collection Agency) or by an internal creditor’s department. The whole procedure is characterised with implementing various collection methods and strategies to recover debt amounts on behalf of the original lender. In the corporate debt recovery both creditor and consumer (debtor) are business organisations. Commercial collection agencies specialise mainly in recovery of delinquent or late payments. There are some collection agents, however, who also practice purchase of commercial bad debts. Such agents are named as business debt collection & agents. DCAs, which do not offer debt collection on behalf of the creditor, but only buy business-to-business (B2B) debts, are known as corporate debt purchasers. Specialists advise the business default recovery to be started as early as possible, because commercial debts are always connected with large amounts of credits.


Business debt recovery and bad debt commercial collection

A business debt recovery agency practices bad debt commercial collection of business default payments. Bad debt is relevant to the definition of a certain monetary amount lent by a creditor organisation to another business company. Bad debt occurs when the same amount is unlikely to be reimbursed by the consumer. The reasons can be bankruptcy, liquidation of the consumer’s company, or unwillingness to pay. In all cases the consumer company becomes a debtor and the amount lent- a bad debt.

When a company falls behind with payments and the creditor estimates that the monetary sum will be hard or impossible to collect, he marks this bad debt as “written-off”, which generates a loss in creditor’s company financial system. When the lender hires a debt collection agency, which starts the business commercial debt recovery process and successfully collects the amount due, this will generate a positive income in the same creditor’s financial system. If the lender decided to sell the debt profile to business debt recovery debt purchasers, the debt buyers will pay a portion of original debt’s amount to the creditor and become the new debt owner. From then on the debt buyer can continue with the commercial debt recovery process and try to collect the amount on behalf of their own company, or he call re-sell the default profiles to a second and smaller debt purchasing company.

Problematic loans are something very common these days, especially in the sphere of corporate organisations. As lenders very often give monetary credits to commercial partners, who fall into debt, business debt recovery is vital for a successful business organisation. If a creditor decides to hire a commercial debt recovery agency, every collected debt amount, will go as a positive cash flow into creditor’s financial department and will generate profit.

Arrangement plans in business debt recovery

Business debt recovery agencies often offer different arrangement plans, which are statutory and legally recognised. Such plans can be provided by agency’s debt management department, where legal representatives (lawyers or debt collection solicitors) prepare an individual payment method for each debtor. If the DCA does not provide the legal formation of negotiation plans, the collection agency can redirect the commercial debtor towards specialised institutions providing debt arrangement plans, e.g. the Citizens Advice Bureau and the Consumer Credit Counselling Service for UK (ext. link 5 and 6), the National Debt Line for UK and Wales; the main regulator for debt management plans in Germany is the German Finance Agency (Deutsche Finanzagentur); etc.

Arrangement plans are usually based on monthly payments of equal amounts until the debt is cleared. The creditor will not contact the debtor, unless he falls into late payments again. If signed by both sides, a debt negotiation payment offer clears all additional fees and charges applicable to the debtor before the mounting of the debt arrangement plan’s contract.

These negotiation proposals are used in order consumer’s bankruptcy to be avoided. A debt settlement plan is beneficial for both creditor and consumer firstly because court actions can be avoided by signing such payment agreement and this will save sufficient sum to the lender and to the debtor as well. On one hand, the company in debt can continue its business without filing bankruptcy, which can end its business. And on other hand the lender will recover their delinquent amounts after some time. Negotiation payment is a better option for the creditor because if the business debtor files bankruptcy, the lender will not be able to recover the debt amount at all.

In the business debt recovery sphere, debt arrangement plans fall under different names in different countries. In UK such agreements are known as CVA- Company Voluntary Arrangements-
http://en.wikipedia.org/wiki/Company_Voluntary_Arrangement#Company_voluntary_arrangement
, operating in compliance with the Companies Act 2006 (ext. link 8); in Scotland and Wales- Debt Arrangement Scheme-
http://www.dasscotland.gov.uk/
; Germany starts to recognise British debt arrangement schemes as well, etc.


Used literature & external links

http://www.wisegeek.com/what-is-commercial-debt-collection.htm
 

http://www.bizhelp24.com/money/debt-collection/business-bad-debt-collection.html
 

http://topics.wisegeek.net/topics.htm?debt-management-services
 

http://en.wikipedia.org/wiki/Bad_debt
 

http://www.citizensadvice.org.uk/
 

http://www.stepchange.org/
 

http://www.moneysupermarket.com/c/news/how-to-choose-a-debt-management-company/0004312/
 

http://www.legislation.gov.uk/ukpga/2006/46/pdfs/ukpga_20060046_en.pdf