Small business debt collection

eCollect support team

Small business debt collection offers late payment collection solutions and recovery of bad debts for small businesses. A small business debt recovery agency serves as an assistant of the original creditor and can perform the whole debt collection process. Such debt recovery refers to collecting incomplete commercial payments and resolving business debt recovery issues. Agencies offering small B2B debt collection usually deal with late payments in smaller companies. Under “small companies” fall organisations with employees between 15 (Australia), 50 (the EU definition) and 500 (definition of U.S.). When there is a loan contract between two businesses, the period for settling the amount is usually 30 days (e.g. for UK and U.S.). After this time frame, the invoice becomes overdue and the loan- a debt. Corporate debts result from poor entrepreneur planning and more specifically- from the difference between expected and actual expenses. This is why the usage of small B2B debt collection is vital, when there are cases of late corporate payments or bad commercial debts.

Aspects of small business debt collection

Small corporate debt collection organisations chase mostly overdue business payments, widely known as charge- off accounts. A debt is named as charged- off, when the creditor has already attempted to collect the delinquent amount, but without success. In such case the debt is declared by the lender as uncollectible and is being written- off; and a business recovery agency steps in.

Small business debt collection can be generally divided in two groups, according to its operation location. If a DCA (Debt Collection Agency) serves only one country, the debt recovery process and the agency itself are called “local” or “national”. If the collection agency operates within more than one country, the small commercial debt collection process and the recovery agency are named international or worldwide.

Depending on the field of operation, the small business debt recovery is regulated by numerous laws and acts. For Germany this is the Tribunal for Commercial Matters (in German: Kammer für Handelssachen). For the whole European Union:
(the Directive 2011/7/EU of the European Parliament and of the Council on combating late payment in commercial transactions). In US one of the legal regulators for business debt recovery is the Commercial Law League of America and in the United Kingdom- the Late Payment of Commercial Debts Act (valid also for Wales, Scotland and Northern Ireland)

The small business debt recovery defines two types of commercial collection agencies- first party and third party. Third party refers to the standard and registered debt recovery agencies, which act on behalf of the creditor but are not part of his company. A third- party small B2B debt collection agency has the right to charge a commission fee, but is not authorised to require percentage payment bigger than the mention in laws of different countries (in UK, for example, this interest rate is not more than 8% from the net debt amount). When the agents are employed by the lender and work in the same company and its subdivisions, the debt collectors are considered as first- party. They can still charge the debtor an interest, but not as a DCA (Debt Collection Agency). UK and EU laws, however, allow the creditor to claim additional fee from the subject of debt for default payments. The same EU directive mentioned above authorises the creditor to charge such interest without giving any preceding written or oral notice. According to EU regulations, the interest rate of a small business debt recovery agency must not exceed 8.5%.

Profits of hiring a small business debt collection agency

When hiring a small commercial debt collection agency, a creditor can benefit from using such debt recovery organisation.

  • A small corporate debt collection agency has the needful capacity and resources to carry out a successful debt collection process. Solving debt recovery problems within creditor’s company can cause low rate of productivity, time and fund loss;
  • A small B2B debt collection agency produces higher success rate than creditor’s internal debt collection departments, which means a third- party recovery agency is more likely to collect the amount due even without using court proceedings. Logically, every successfully collected corporate debt is a profit for the creditor;
  • The DCA will strive to cause minimum damage to the creditor- debtor relations and preserve their business partnerships;

If a creditor doesn’t wish to pass the whole collection process to a DCA, but needs professional help, he can hire a debt collection solicitor or a DCA as an advisor. The attorney will work out the lawful texts of recovery letters and send official reminders, letters of demand and letters before action to the debtor on behalf of the creditor. A small business debt collection agency can advise the creditor in connection with the recovery procedure and also perform scoring or monitoring of the debtors for the lender.

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