Commercial collections include the collection of outstanding debts and/or judgments owed by one business or individual to another business based on a commercial or non-consumer debt. This includes debt collection for small businesses and debt collection for large businesses. It includes collecting small business debts and large business debts either beginning with a phone call or demand letter and continuing through collection of the debt by either voluntary means or use of the legal process. Commercial collections can include the recovery of amounts owed on unsecured promissory notes or loans, secured promissory notes or installments contracts, leases, or oral or written contracts for services or goods.
When many people hear the word collections, they imagine an office full of cubicles filled with collection agency employees making harassing phone calls to individuals to collect credit card debt. But commercial collections are not the same as consumer collections. Consumer collections would include, among others, credit cards debts and personal loans for consumer purposes. As noted above, commercial collections concern the collection of non-consumer debts that result from business dealings. Consumer debts are also subject to the Fair Debt Collection Practices Act which covers family, household and personal debts which may include personal credit cards, auto loans, medical bills and mortgages. The Fair Debt Collection Practices Act also requires the collector to give the consumer certain statutory notices and wait a certain amount of time after giving such notices prior to undertaking further action. Commercial collections are not subject to the Fair Debt Collection Practices Act because they do not include consumer related debts.
Commercial collections can be conducted directly by the business holder of the debt or by an attorney on its behalf. A simple phone call to the debtor business may be all that is required or a formal written demand letter detailing the debt and the likelihood of further action if the debt is not resolved.
Commercial collections can also mean creditor representation in bankruptcy court when the debtor business files for bankruptcy protection. This may include filing a proof of claim detailing the debt owed to the creditor or objecting to the creditor’s proposed treatment in a plan of reorganization or filing a motion to lift the automatic stay of the bankruptcy proceeding to pursue insurance proceeds or recover collateral held by the debtor pursuant to a secured loan with the creditor.
Commercial collections can include alternative dispute resolution (ADR). The most common forms of ADR are mediation and arbitration but alternative dispute resolution can refer to any means of resolving and settling disputes outside of the courtroom and avoiding litigation. The most effective of these may simply be negotiation. Negotiation allows the parties to attempt to resolve an issue without the need for a mediator or arbitrator and is always an option.
While commercial collections often do involve the use of litigation, we certainly try to avoid the formal legal process if at all possible but are always ready and able to move forward with litigation if we are unable to quickly achieve a favorable result on behalf of our clients.