We’re often asked the question about the difference between commercial and consumer debt collection and if, indeed, there is a difference.
In quick response, yes, there is a difference between the two, and we also note in response that because of this not all debt collection agencies are the same.
For example, when comparing consumer vs. B2B debt collections, some agencies specialise in one area only, which means that for businesses and individuals, you need to work with a team that best meets your needs.
In this post, we look at some of the key differences between consumer and commercial debt collection, as well as commercial debt recovery and how the Direct Route can help.
What is consumer debt collection?
It’s important to understand that not all debts are the same, and each has its own challenges, regulations, and strategy that collection agencies must follow and utilise to ensure an effective solution.
Consumer debt collection involves collecting outstanding debts/amounts that are between a company and an individual.
For example, late credit card payments, mortgage repayments, mobile phone bills, and so on.
Consumer debts can be small or large sums of money. However, there are stricter regulations regarding when consumers/individuals can be contacted, how they can be contacted, and other details outlined in the Fair Debt Collection Practices guidance.
For example, consumers cannot be contacted at unreasonable hours, information cannot be shared with employers or places of work, and threatening or manipulative language must never be used.
Collection of consumer debts involves being sensitive to personal circumstances and finding out the reason for non-payment, i.e., financial problems, vulnerability, etc, in order to support how to move forward with the collection process.
Consumers do have more protection when it comes to collections in contrast to collecting commercial debts, so it is always advisable to work with a professional team that understands these regulations and has experience in this area.
Commercial vs consumer debt collection
When it comes to commercial vs consumer collection, B2B debt involves invoices between two businesses that remain outstanding/have become overdue.
Most companies, when overdue invoices begin to pile up, will look to work with a professional collection agency to collect outstanding debts on their behalf. Saving time, resources, and money.
Outsourcing is also often preferred as commercial debt collection can be complex, time-consuming, involve large amounts, involve disputes, and require more resources.
Commercial collections can also involve multiple parties, including suppliers, manufacturers, and delivery teams.
This means collection agents must have strong negotiation skills and a good understanding of the law, business contracts, and commercial collection practices.
Again, it’s important to understand the reason behind late payment, i.e., are the businesses facing financial problems, is there a contractual dispute, etc?
Differences between commercial and consumer debt collection
B2B
- More formal requiring a more professional approach in order to maintain the business relationship
- Due to the formality of the agreements and contracts in place, communication is much more structured
- Every contact and piece of communication must be documented and recorded in case the overdue account escalates to court
- Commercial debt collection practices are less regulated than consumer; however, businesses are still required to adhere to fair business practices
- It requires a lot of negotiation and coordinated effort between various parties
- Payment plans can form part of the recovery strategy
- You can report commercial debt to the major credit reference agencies
What is consumer collection?
- You are working with individuals, so often, a more empathetic approach is required
- The sector is heavily regulated, so aggressive collection techniques must be avoided
- There is more emotion involved in this type of collection, making the collection process less formal and more compassionate
Managing late payments
There are ways businesses can help to alleviate outstanding debts and the late payment of invoices, whether this is a consumer or commercial debt, for example:
- Issue invoices promptly
- Include all details on the invoice, including due dates, contact details, ways to pay, etc.
- Offer various ways to pay
- Send follow-ups and reminders as the due date draws closer
- Offer early payment discounts (where applicable)
- Have clear payment terms and discuss these before entering into a contract
- Have robust credit control procedures and processes in place
- Ensure your credit control team is trained and up to date with all guidance and legislation
Late payments of commercial debts
As we have discussed, there are numerous differences between commercial and consumer debt collection.
From the laws and guidance surrounding each to the varying collection methods that can be used and implemented, you need to understand all aspects and areas in order to manage and recover debts effectively,
At Direct Route, we tailor our commercial collection strategies to suit each client, enabling us to achieve high levels of success.
If you’re struggling with commercial collections and you’re looking to support your credit function further, speak to a member of our team today and see how we can help you.
Call +447860197476 or email memberbenefits@directroute.co.uk – we’d be happy to help.