There are many issues to consider before you start collecting commercial accounts

If you collect on consumer accounts, can you easily collect on commercial accounts? Not necessarily Although consumer and commercial collections have many similarities, they also have many differences. Understanding these differences will help you learn how to best collect on the account depending on the type of debtor: consumer or business.

First, it's important to know the basic difference between a consumer account and commercial account. This can be seen in the origin and purpose of the debt. Consumer or retail claims arise from sales made to or services performed for an individual or an individual's family. The Fair Debt Collection Practices Act (FDCPA) defines consumer debt as "any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance or services which are the subject of the transaction are primarily for personal, family or household purposes, whether or not such obligation has been reduced to judgment."

In commercial claims, the purchaser (a corporation, partnership or sole ownership operation) buys for the purpose of a resale and with the view of making a profit. The purchaser buys material or services from firms that deal in raw material, from manufacturers or wholesalers, or from firms that furnish services to other companies. In other words, the debt does not satisfy the needs of an individual or family, but rather the needs of a business.

The International Association of Commercial Collectors (TACC) describes a commercial claim as a debt arising "from an obligation to pay for goods sold or leased, services rendered or monies loaned for use in the conduct of a business or profession, and not for personal consumption."

There are many benefits to adding a commercial component to a consumer agency.

"We do both: 25 percent consumer and 75 percent commercial," said Jan Hazes, a director on the IACC board and president of Hakort International Inc. "The number of consumer accounts is far greater than the commercial accounts, but the amount owed on the commercial accounts is much higher. Also, the commercial debtors are easier to trace and in general it's easier to collect. If you have a small to medium agency, it is hard to handle a lot of small consumer claims so a good mix of commercial clients and a select number of consumer clients can be healthy for your business."

Once the differences in the origin and purpose of consumer and commercial debts are identified, you can better determine how to handle the commercial account.

Speed of Collection

Time is of the essence with commercial accounts, as they must be collected more quickly than consumer accounts. With consumer debt, often a payment plan can be made to recover the monies due; however, this generally is not preferable for commercial collections.

Because a company in debt could potentially go out of business and cease to exist, it's imperative to collect the debt as soon as it's turned over to the collection agency. Immediate contact with the debtor is necessary to determine the likelihood of collection. If it's not likely the debt will be collected, the creditor may wish to pursue legal action before assets are liquidated and the business is dissolved.

Businesses in financial trouble can run through assets very quickly, especially if the debtor company is going out of business and other creditors are asking for payment as well. Therefore, prompt attention to a commercial claim is essential. The faster you act, the more likely the debt will be recovered. In general, commercial debt tends to be more collectable than consumer debt.

Accessibility

Generally, commercial debtors are easier to locate and contact than consumer debtors. Individuals can move around, change names, change jobs and change spouses. While some shady businesses have been known to "disappear," for the most part a legitimate business is easy to locate and contact. In theory, commercial debt should also be easy to verify as there are usually signed purchase orders, contracts, bills of lading and other documents. Depending on the client's recordkeeping, however, these essential documents may not always be available.

Importance of Reporting

Not only is the reporting process important to the creditor, it's important to the agency as well.

The creditor's request for a report is essential to solve very practical problems faced by the credit manager or fiscal officer. Every creditor has the right to expect timely reports throughout the course of collection activity. If other creditors are compromising an account or if the debtor is in danger of closing or selling out, the client is entitled to this information and the agency's advice and recommendations.

Reporting benefits the creditor and is equally important for the agency, both as a business tool and as a way to maximize efficiency. Aside from a remittance check, what better pitch for additional business is there than a well-written and substantive report? A salesperson tells the prospective client what you will do, a check tells the client what you have done, but a report tells the client what you are doing today.