How to Deal With Business Debt Collectors: 7 Rules for the Calls, Letters, and Threats

A collector calling about a business debt answers to fewer rules than one calling about a credit card, and the business on the other end of the line has fewer protections, so the discipline that consumer law imposes on the caller has to be supplied instead by the person who picks up. That is less bleak than it sounds. Most of what protects a business in collection is conduct it controls.

Seven rules follow, arranged roughly in the order a collection unfolds, from the first call to the day a process server appears. Anyone looking for help with debt collectors on a commercial account will find that most of it begins with a pen.

1. Learn Who Is Calling Before Saying Anything About the Debt

The person on the telephone may work for the original creditor, for an agency paid to collect on the creditor's behalf, for a buyer that purchased the account, or for a law firm. Each stands in a different position, and the first minute of the call should establish which one this is: the caller's name, the company, its mailing address, a callback number, the account in question, and the creditor for whom it claims to act.

Then the business confirms those facts through a number it finds itself, not the one the caller supplies. Impersonation of real creditors is a known scheme, and a business that pays a fraudster has not reduced its balance by a cent.

Licensing may matter, though less often than owners hope. New York City requires a Debt Collection Agency license for businesses whose principal purpose is collecting personal or household debts from city residents, which leaves a collector pursuing only business accounts outside it. Some states reach further; Nevada, for example, requires a license to engage in the business of a collection agency within the state, and treats a collector located there as engaged in business regardless of where the debtor lives. Whether a particular caller needed a license, and lacked one, is a question to hand to counsel with the caller's details attached.

2. The Only Promise Worth Making by Telephone Is a Promise to Answer in Writing

The collector is taking notes. Whatever the owner concedes on the call (the balance is about right, a payment might come Friday, the business is in trouble) becomes part of a file that someone may later read aloud.

You say you will pay something next week and now there is a record that you owe it.

The written record carries more weight still. Under General Obligations Law section 17-101, a written acknowledgment or promise signed by the party to be charged is the only competent evidence of a new or continuing contract that takes a claim outside the limitations period. Collectors sometimes follow a call with a letter confirming the understanding reached, and it arrives with a signature line. That line deserves a reading by counsel before it receives a signature, particularly on an older account.

3. A Written Request for the File Costs Less Than the Conversation

The federal validation notice that consumers receive does not attach to business accounts, because the Fair Debt Collection Practices Act defines a debt by reference to obligations for personal, family, or household purposes. The business has to ask for itself.

A short letter does it: the signed contract and any guaranty, the statement of account, the payment history, the calculation of fees and interest, and, where the caller is not the original creditor, the document by which the account was assigned. A collector that cannot produce these has disclosed something about its file.

4. Record the Call Where the Law Permits and Log It Everywhere

New York permits a party to a telephone call to record it. The eavesdropping statute, Penal Law section 250.05, makes unlawful wiretapping a class E felony, and section 250.00 defines wiretapping as the recording of a telephonic communication by a person other than a sender or receiver, without the consent of either. A business owner recording his or her own call is a receiver. Other states write the rule differently, and a call with a collector in another state should be checked against that state's statute before the recording begins.

Where recording is doubtful, the log does the work. Date, time, number, the caller's name, the words used for any threat, written within the hour.

5. A Threat to Report a Crime Unless the Business Pays Sits Near a Criminal Statute

Collectors on commercial accounts sometimes move from the balance to the police. The business committed fraud; the funder will be forced to go to the district attorney; payment today would make that unnecessary. The sequence is familiar, and it is worth knowing how New York's Penal Law regards it.

Under Penal Law section 155.05(2)(e), a person obtains property by extortion when he or she compels its delivery by instilling a fear that, if the property is not delivered, the actor or another will accuse some person of a crime or cause criminal charges to be instituted against that person. Payment in exchange for silence about an alleged crime fits the description closely enough that the legislature wrote a defense for it.

But the defense is real. Section 155.15(2) provides that, in a prosecution for extortion by threat of criminal charges, it is an affirmative defense that the defendant reasonably believed the threatened charge to be true and that his sole purpose was to compel the victim to take reasonable action to make good the wrong that was the subject of the charge. A creditor who genuinely believes it was defrauded, and who wants only its money back, has room the statute preserves.

A collector has no power of arrest. It has a telephone, a contract, and eventually a courthouse.

The business owner is not the judge of which side of that line a particular call fell on, and accusing the caller of extortion on the next call helps nobody, the owner least of all. The words go into the log from the fourth rule, exactly as spoken, and the log goes to counsel, who can decide whether the conduct warrants a complaint to a prosecutor, a regulator, or no one, a decision that depends on what else the file shows about the creditor, the account, the owner's own conduct in obtaining the credit, and several things a telephone call cannot reveal to the person receiving it. If any real authority makes contact, that is a matter for a criminal lawyer the same day.

The threat of arrest is, in most commercial collections, the least serious thing the caller says.

6. The Summons, Not the Call, Starts the Clock That Matters

A collector's deadline is a negotiating position. A court's deadline is not, and the two tend to arrive in the wrong order of emphasis, with the loud one first.

In a New York state court action, CPLR 320(a) requires an appearance within twenty days after service of the summons, or within thirty days after service is complete where service was made by the other methods the rule lists. A business that misses that window invites a default, and under CPLR 3215(a) a creditor with a claim for a sum certain may apply to the clerk for judgment. After judgment, an information subpoena served by certified mail must be answered in writing, under oath, within seven days after receipt.

The business that treated three months of calls as the emergency may treat the summons, which arrives quietly and without anyone raising a voice, as one more letter. It is the only document in the sequence with the court's authority behind it.

7. The Threat to Ruin the Business's Credit Concerns a Different File

Commercial credit files are not governed by the consumer reporting rules that protect individuals. Dun & Bradstreet's PAYDEX score is built from trade experiences submitted by suppliers and vendors, and Experian accepts disputes of business report data through a Submit Data Dispute button on the report itself, generally completing an investigation within 30 days. An owner who wants to know what a collector could have reported can read both files, at little or no cost in D&B's case, before the threat is repeated.

Where the Pressure Comes From an Advance

Much of the collection pressure small businesses describe comes from merchant cash advance funders and the firms that collect for them. Delancey Street negotiates those obligations on behalf of the business; it is not a law firm, gives no legal advice, and does not answer lawsuits, which go to independently licensed counsel. The initial review of the contracts and the collection correspondence costs nothing and stays confidential, and it cannot stop a lawsuit or guarantee a settlement. Collectors have always relied on the debtor's urgency. The written record is how a business returns the urgency to the side that is asking for money.