Commercial debt recovery

Helene Mueller
eCollect support team

Commercial debt recovery represents the collection of delinquent amounts from a business (debtor) on behalf of another business (creditor). It is usually carried out by a third-party (a debt collection agency), not involved in the original contract between the first party (lender) and the second party (subject of debt). A commercial debt itself characterises a debt owed by a company. Business debt recovery provided by a DCA (Debt Collection Agency) is a preferred option by many creditors, as this collection is less time-consuming. It is also more cost-effective than a first-party debt recovery, where the collection process is performed within a creditor company’s subdivision. Company debt recovery agencies are licensed and operate within the borders of an ethical and legal collection service.

Distinctive profile of commercial debt recovery

Commercial debt recovery is also known as B2B or “business-to-business” debt collection. The B2B debt itself represents a funding loan arrangement for business or corporate investment. DCAs’ actions, providing business debt recovery, are needed when a payment or an invoice has become overdue. A late payment is considered as such when it hasn’t been settled after the deadline (a specific period of time; usually between 30-60 days, depending on the country). However, this time period is valid for consumer debts; as for the commercial debts, the time limit can be bigger- from 60 days to 5 years, depending on the amount and type of business debt (short-term, middle-term or long-term corporate debt).

B2B debt recovery includes all pre-legal and legal collection methods and tools, used for the successful recovery of delinquent amounts and past-due invoices. They consist of tracing services; different types of communications, such as phone-calls, emails, letters, etc.; in-house personal visits; debt solicitors and bailiffs arranging various payment plans, etc. Sometimes the business debt recovery can also consist of constant debtors’ screening profile as a service (also called debt portfolio screening), which offers surveillance of bad debts with precise scoring system. Such screening can be used to calculate the possibilities of future bad debt formation as well, i.e. which consumer accounts are more or less likely to run into debt.

Business-to-business debt recovery can be provided on a local or transnational level. It is regulated by different state and country acts, laws and international organisations, such as: the Commercial Collection Association for US- ext. link 6, also the Commercial Law League Association (CLLA)- for US; and Late Payments of Commercial Debts (Interest) Act for UK- ext. link 7; the Commercial Law League of America- ext. link 8; the Directive on Late Payments 2011/7/EU- ext. link 9, etc. If the business-to-business debt recovery is offered for more than one country, the collection agency has to comply with various laws. Usually, if the service is provided internationally, the DCA has its legal representatives placed in each country of operation.

Commercial debt recovery- target clients and fee structure

Corporate debt recovery targets business and corporate clients who owe delinquent amounts to another business organisation, the creditor. Its main interest are unsecured corporate debts, not followed by a collateral, such as purchase loans, unpaid bills, medical past-due debts, etc. Commercial debt recovery can also go after more complicated delinquent amounts, like debts occurred after different loans for business funding. When the collection process begins, commercial DCAs focus on companies’ financial and accountings department in order to recover the past-due debts.

Commercial debt recovery agencies generally charge a “collection cost”, which includes all expenses during the whole debt recovery process. It can consist of different fees from hiring bailiffs, debt solicitors, court actions, and other taxes applicable for the creditor/debtor.

Commercial DCAs have different fee structures. Some charge upfront, or request a flat fee per month or per week. However, there are DCAs, which collect their interest rate after successful recovery of the past-due amounts (the policy of no collection, no fee). Some business debt recovery agents collect their interest rate not from the creditor, but from the debtor instead. In countries like Germany, Switzerland, Austria (GSA area) subjects of debt are obliged by law to pay not only their debts but DCA’s interest rate as well. In UK it is also legal, but if there is a clause in the contract specifying such payment. Law strictly regulates corporate debt recovery’s commission fees. In UK, for example, a DCA is not allowed to charge more than 8% interest on top of the full debt amount that is to be collected from the debtor.

Used literature & external links