Commercial Collections FAQs
1. What do you mean by “commercial collections”?
Commercial collections involve collecting accounts, notes or other evidences of indebtedness for the purchase of goods or services not used for personal, family or household purposes.
2. What is a “creditor”?
The creditor is the entity or individual who is owed the money and seeking to recover it.
3. What is a “debtor”?
A debtor is the entity or individual who owes a debt to a creditor, in terms of the debt collection laws in NC.
4. Why is there a distinction between commercial and consumer credit?
Federal credit laws, such as the Fair Debt Collections Practices Act and Fair Credit Reporting Act, apply differently to a consumer debt than to a commercial debt. The acts are largely designed to protect consumers who are considered to have less business savvy and leverage in negotiations with creditors.
5. Why do creditors request personal guaranty for many commercial accounts?
In the realm of business open accounts, creditors will often evaluate the credit worthiness of a corporate applicant. Unless the applicant has an established credit history and sound financial underpinnings, lenders generally will seek to guarantee payment of the account often from the principals of the applicant. If there are still questions about the creditworthiness, the creditor may require further guarantors whether they be a related corporate entity(ies) or an individual(s). A spouse cannot be required to serve as a guarantor unless the spouse is actively involved in the business. A spouse may be asked to be a guarantor if the creditworthiness of the applicant and principal are not sufficient to warrant extending credit.
6. What information is essential to a creditor?
In order to run accurate credit analysis, creditors generally will need the debtor’s full legal name (corporate or individual), debtor’s federal tax identification number or the individual’s social security number, the individual debtor’s date of birth, some credit references and banking information. Some creditors will require financial statements.
7. What documents may be used to evidence commercial credit?
Credit application; promissory note; corporate guaranty; or personal guaranty.
8. What are “red flags”?
The federal government and most state governments have passed laws to protect individuals from identity theft. These regulations generally dictate how creditors are to handle and protect information gathered for use in analyzing credit worthiness. Since much of the information necessary to adequately evaluate credit is also the information identity thieves need to wreak havoc on an individual’s credit, knowing the “red flag” rules is essential for any creditor.
9. Can a corporation or LLC represent itself in court?
Most states as well as federal law require that corporate entities be represented by counsel when appearing in court. The general exception is that corporations and LLCs may be represented by an owner or principal in small claims court. However, if the debtor appeals the small claims court’sverdict, the corporation will have to retain counsel to handle the matter at the district court level.
If you have a commercial collections issue and require the assistance of an attorney well-versed in the debt collection laws in NC, please contact an attorney at Hannah Sheridan & Cochran, LLP, at 919-859-6840.