How to Handle a Collection Agency for a Business Debt
As a business owner, you may use business credit cards and other methods of financing to help pay for the costs associated with running your business. As with personal debt, creditors may turn over your unpaid business debts to a collection agency if you fail to pay as originally agreed upon. If you receive a notice of collection against your business from a collector, you can avoid persistent collection attempts by validating the debt and working with the collector to repay the money you owe.
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Instructions
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Request in writing a validation of any debt a collection agency attempts to collect from your business or any previous business that you owned or were a partner in. You are only liable for the debts the agency can prove you owe.
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Contact your debt collector to discuss a plan to repay your debts. Though collection agencies are under no obligation to negotiate the balance on your account, your collector may agree to settle your balance for less than you owe.
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Consult with a debtor’s rights attorney if a collection agency uses harassing attempts to collect a debt from your business. Though businesses have no federal protections from creditors, your state’s laws may provide a statute of limitations regarding collection attempts and how long a creditor may pursue you for an unpaid debt.
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Tips & Warnings
Collection agencies charge high fees for their services. According to the Nolo website, the average debt collector will only pay an original creditor half of the amount of money recovered from a debtor. If you know your debt will soon go to collections, you may benefit from negotiating with your creditor directly. Some creditors will agree to a fixed payment plan or offer a discount for paying the account in full, so long as the business receives a payment that exceeds the amount a collection agency would remit.
If you are unable to pay your debts, filing for bankruptcy can halt collection attempts as well as restructure or relieve you of your financial obligations to creditors and collection agencies. You may continue conducting business as usual during and following a nonliquidation bankruptcy.
If you don’t pay a collection agency for your business debts, you place your business credit rating at risk. A poor credit rating will affect your ability to secure future credit and loans for your business. Furthermore, failing to remit payment for your business debt could result in a lawsuit, and a favorable judgment for your creditor could result in seizure of your business assets.
According to the Federal Trade Commission, the debts you incur to run a business do not receive protection from the Fair Debt Collection Protection Act for consumers. This means that collectors may contact you at whatever time they may wish, as well as share the facts surrounding your debt with friends, family members, and other individuals and businesses.
