When a debt collector contacts you, follow these steps to ensure your business is protected and also living up to its obligations.
If your business has an outstanding balance with another business, and its collection efforts haven't worked, there is the chance that you could end up talking to a debt collection company.
Business debt collection is different from debt collection for a personal account. It's important to know what you should and shouldn't do, and what rights you have, to protect yourself during the process.
1. Don't ignore it.
If you're getting calls and letters from a collection agency, ignoring them won't make them go away. It could actually make the problem worse. A collection agency can continue to call you and may take the step of reporting the unpaid debt on your business credit report. Those debts will be on your report for up to seven years.
If an agency is trying to reach you, call and speak to a representative. Ask them to mail you validation of the debt, which the law allows for within 30 days of being contacted by a collections agent. This should give you the date of the debt and the name of the creditor so that you can investigate the issue.
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That said, harassing and nuisance phone calls with abusive language are illegal. You can report violations to your state attorney general's office. You can also report to the Consumer Financial Protection Bureau online or by phone at (855) 411-2372.
2. Don't acknowledge fault.
In your first contact with the agency, don't say anything that would indicate you accept the debt or acknowledge it's yours. You don't want to put yourself in a situation where you need to pay a debt that has been attributed to you in error. In your first contact, simply ask for validation.
Some collectors may try to get you to verbally agree to a payment, or ask that you pay at least part of the debt immediately. Resist doing so. You should take several more steps to protect yourself, and even a small payment may be seen as admitting that the debt is yours.
It's a good idea to record your conversations with a debt collector, if it's legal to do so in your state. Start by telling the collector the call is being recorded.
3. Research the debt.
Once you've received the information from the debt collector, investigate. Is the debt really yours? Is the amount correct? Is this something that really wasn't paid? Overdue accounts may be sold multiple times to different debt collectors, and errors can make their way into the files as they pass from one company to another. Depending on what state you're dealing with, the statute of limitations may have expired on the debt. [Interested in working with a debt collection agency? Check out our reviews and best picks.]
4. Hire help.
Find an attorney who specializes in consumer law. Chances of a lawsuit being dismissed in court may be higher if you show up with a lawyer. The National Association of Consumer Advocates has a search page to help you find such representation as you need.
5. Dispute it if it's wrong.
If you find something wrong – such as the debt amount or to whom the debt belongs – notify the collector that you are disputing the debt. You'll need to provide as much proof as you have to make your case – canceled checks for payments, business name papers if the debt belongs to someone else, copies of the original invoice if the amount is wrong. Send copies – not originals – of all of your documents supporting your dispute via registered mail.
6. Keep copies and records.
There's no consensus on how long your company needs to keep documents. Some say that it should line up with how long you keep tax records.
There are credit card debt statutes of limitations by state. In Alabama, Alaska, Delaware, Kansas, Louisiana, Maryland, Mississippi, New Hampshire, North Carolina, South Carolina, Virginia and Washington, D.C., it is three years. In California, Nebraska, Nevada, New Mexico, Pennsylvania and Texas, it's four years.
Debt expires after five years in Florida, Idaho, Illinois, Iowa, Kentucky, Missouri and Oklahoma, but it's six years in Arizona, Colorado, Connecticut, Georgia, Hawaii, Indiana, Maine, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Ohio, Oregon, South Dakota, Tennessee, Utah, Vermont, Washington and Wisconsin. Debt sticks around for eight years in Montana, and 10 years in Rhode Island and West Virginia.
7. Pay the bill.
If you receive the documentation and find the debt is legitimate, you should pay it. Contact the collector to discuss arrangements for payment. You may be able to negotiate for a lower amount if you agree to settle the debt. Ask what the collector can do to lower the amount you owe or if any late fees and finance charges can be removed. This is also the time to find out if a payment plan is possible.
Once you reach an arrangement, do not pay until you have the agreement in writing. Your agreement should include all of the terms you've agreed to, such as settlement amounts and payment dates.
When you have the agreement in writing, only then should you proceed to pay the debt. Be sure to certify any mail and get a return receipt as proof that your letters or payments were received. Once the debt is paid, request a closed account statement so you have proof of it being paid in full.
Mistakes happen, bills get forgotten, and businesses go through rough spots. This doesn't mean you can walk away from your responsibilities to another company, but it's important to know your rights and how to deal with debt collectors to protect yourself.