The Blurring Lines Between Commercial and Consumer Collections

For years, commercial and consumer collections operated in clearly defined lanes. On the one hand, consumer debt involved individuals, household obligations, and strict regulatory oversight. On the other hand, commercial debt involved businesses operating under contract law, with fewer compliance constraints.

Today, those lines are increasingly blurred. As small businesses, sole proprietors, and gig-economy operators continue to multiply, you may find yourself with obligations that are labeled “commercial”, but which look and behave much more like consumer debt.

For creditors and collection agencies, this shift is making communication and compliance problematic – creating new risks for those that fail to adapt.

Why Classification is Critical

When an account is misclassified – meaning you treat it as commercial when it has consumer characteristics, or vice versa – the consequences can be significant.

Primarily, this is because consumer accounts are governed by regulations under the Fair Debt Collection Practices Act (FDCPA). This sets strict guidelines around disclosures, communication methods, dispute handling, and documentation. Commercial accounts, however, operate under contract law with greater flexibility to employ direct negotiations in order to maximize recovery.

Unfortunately, handling consumer-adjacent accounts as if they were commercial can lead to compliance violations and legal action. On the other hand, treating a commercial debt like a consumer obligation leads to under-communication, missed escalation opportunities, and lower recoveries.

In either case, misclassification creates unnecessary risk for everyone involved.

Why Misclassification is a growing trend

Right now, there are several market forces making account classification more complex:

– The Rise of Micro-Businesses

One of the key reasons for misclassification is the growing number of micro-businesses and solo entrepreneurs. According to Forbes, over 80%, of small businesses operating in the US are solo ventures. In fact, out of the 33.3 million small businesses, 27.1 million are managed solely by their owners.

As a result, a growing share of “commercial” debtors are sole proprietors, independent contractors, and single-member LLCs. Although these may seem like businesses on paper, in practice, they behave more like consumers, using personal email addresses, mobile phone numbers, residential addresses, and personal payment methods.

– Availability of Hybrid Financial Products

With so many micro-businesses keen to get off the ground, there are a host of financial initiatives to help them succeed – many of which blur the line between personal and business obligations. Common examples include:

– commercial auto policies used for personal activities
– business policies written for home-based operations
– deductibles tied to personal claims
– personal guarantees on a business account

These hybrid products provide much-needed flexibility for fledgling businesses, but they also create confusion. Not only do “solo-preneurs” struggle to evaluate the risks, but if debts accrue, collections can fall into a regulatory gray area.

– The Growth of Digital Commerce

Personal credit cards and mobile wallets muddy the waters further. When business services are purchased using consumer-style checkout experiences, the transaction is often classed as personal, even if it was for business purposes. That means when disputes occur, regulators are more likely to decide that consumer protections should apply.

– Regulatory Creep

Unsurprisingly in this complex environment, the commercial collections industry is moving swiftly towards greater regulation. California is leading the way here with its 2025 amendment to the Rosenthal Fair Debt Collection Practices Act (RFDCPA), which now covers commercial debts under $500,000, including personal guarantees on business loans. With further State-led initiatives probable, it is vital that you monitor communication with sole proprietors and micro-businesses more closely.

Economic Presure Compunds the Problen

Across the board, rising costs and financial strain are leading to more delinquent commercial accounts. In many B2B markets, more than half of invoiced sales are overdue and recovery per account is declining.

Micro-businesses and sole traders inevitably feel the squeeze more than most, often making tougher decisions to prioritize repayments. As things get tighter for businesses big and small, that means your accounts receivable team will likely be handling larger volumes of harder-to-collect accounts, often under increased scrutiny.

Enlist Specialist Support for Sensitive Collections

Now, more than ever, commercial collections depend on sensitivity. Agents need to manage difficult conversations with an empathetic approach, using open questioning to get to the heart of the matter without overstepping debtor protections.

To update your training program in light of the market changes at work, take a look at our Collections Training Blueprint. It provides the strategies and frameworks required to nurture sensitive negotiation skills while also adhering to relevant legislation.

Alternatively, you can hand over accounts to our experienced Contingency Collections specialists. At Brennan & Clark, we protect client relationships with people-first negotiations on every claim, so you can be sure of positive client conversations and fair customer outcomes time after time.