Debt Collection Agency USA: The Federal-State Split
Debt Collection in the USA: The FDCPA Doesn't Apply to You (And That Changes Everything)
If you're a European or Asian company owed money by a US business, you've probably been warned about the Fair Debt Collection Practices Act. Strict regulations, litigation risk, compliance minefields.
Here's the frame shift: the FDCPA applies to consumer debt, not commercial debt. If your debtor is a business — an LLC, a corporation, a partnership — the FDCPA's restrictions on calling times, disclosure requirements, and harassment standards simply don't apply to your claim.
This single legal distinction changes the entire collection strategy. B2B debt collection in the United States operates under a fundamentally different framework than the consumer collections most people read about. Understanding that framework is the difference between recovering your money and writing it off.
The Two Americas of Debt Collection
The US is really 50+ jurisdictions, not one. Each state has its own statute of limitations, its own commercial code provisions, and its own court system. A collection strategy that works in New York might fail in Texas.
Key variations that matter:
Statute of limitations. Written contracts range from 3 years (Delaware) to 10 years (Louisiana). The most common commercial states cluster around 4-6 years (New York: 6 years; California: 4 years; Texas: 4 years; Florida: 5 years; Illinois: 10 years). Filing before expiry is essential — once the statute runs, the debt becomes legally unenforceable.
Prejudgment interest. Some states award interest on commercial debts from the due date (New York: 9% per annum under CPLR §5004). Others require a contractual provision. If your contract specifies interest, most states will enforce it. If it doesn't, you may still be entitled to statutory prejudgment interest depending on the jurisdiction.
Attorney fees. The default American rule is that each party bears its own legal costs, regardless of outcome. This is a critical difference from European systems where the loser typically pays. However, if your contract includes an attorney fee clause, US courts generally enforce it. Check your contract.
The Collection Process for Foreign Creditors
Phase 1 — Demand and Skip-Tracing (First 30 Days)
A US-based collection agency sends a formal demand letter to the debtor. For B2B debts, this letter can be more direct than consumer collection letters — no FDCPA mini-Miranda warning required. The letter states the amount owed, references the contract, and sets a 10-15 day deadline.
Simultaneously, the agency conducts skip-tracing and asset investigation. The US has robust commercial data systems — Dun & Bradstreet, LexisNexis, state secretary of state filings — that allow collectors to verify the debtor's current status, officer information, registered agent, and general financial health. This intelligence shapes the collection strategy.
About 45-55% of B2B commercial claims resolve during the demand phase when pursued promptly by a US-based agency.
Phase 2 — Escalated Collection (30-90 Days)
If the demand doesn't produce results, the agency escalates with phone calls, email follow-ups, and increasingly firm correspondence. For B2B claims, collectors can contact the debtor's principals directly, reach out during reasonable business hours without FDCPA time restrictions, and discuss the debt with authorised company representatives.
The key leverage point: reporting to commercial credit bureaus. An entry on the debtor's D&B file or Experian business credit report can affect their ability to obtain financing, win contracts, and maintain vendor relationships. The threat of a credit bureau filing is often more motivating than the threat of litigation, particularly for companies that depend on their credit rating for operations.
Phase 3 — Litigation
US commercial litigation is powerful but expensive. Attorney fees for a standard breach of contract case typically run $5,000-$25,000 through trial, depending on jurisdiction and complexity. However, most cases settle before trial — particularly when the creditor has solid documentation and the debtor has assets to protect.
The strategic calculation: litigation makes economic sense for claims above $25,000-$50,000 where the debtor has identifiable assets. Below that threshold, the cost-benefit often favours continued negotiation or structured settlement.
For foreign creditors, the critical step is selecting a litigation attorney licensed in the debtor's state. US courts have strict jurisdictional requirements, and filing in the wrong venue can waste months.
The Information Gap: UCC Liens and Confession of Judgment
Two mechanisms that most international guides skip:
UCC Liens. The Uniform Commercial Code allows creditors to file a lien on the debtor's business assets (inventory, equipment, accounts receivable) in states where the debtor operates. A UCC-1 filing is inexpensive ($20-50 per state) and creates a secured interest that survives the debtor's bankruptcy. For ongoing supply relationships, including a UCC security interest in your contract terms gives you priority over unsecured creditors.
Confession of Judgment (COJ). Available in some states (notably Pennsylvania and New York for business debts), a confession of judgment clause in your contract allows you to obtain a judgment against the debtor without a lawsuit. The debtor pre-authorises the judgment at the time of signing. This is an extraordinary remedy — essentially a pre-signed admission of liability. If your contract includes a valid COJ clause and you're in a state that enforces them, collection becomes a filing exercise rather than a litigation exercise.
Note: the Federal Trade Commission restricted COJs in consumer lending in 2020, but business-to-business COJ clauses remain enforceable in applicable states.
What Foreign Creditors Get Wrong
Assuming US courts are expensive and slow. For commercial debts with clear documentation, many state courts offer expedited or summary procedures. New York's Commercial Division handles business disputes efficiently. Small claims courts in most states accept claims up to $5,000-$25,000 without attorney representation.
Not having a US-based agent. A collection letter from a foreign company carries less weight than one from a US-registered agency. US debtors know that a foreign creditor faces jurisdictional hurdles. A local agent eliminates that perceived advantage.
Ignoring contract terms. The single most important factor in US commercial debt collection isn't the legal system — it's what your contract says. Choice of law, venue selection, interest rate, attorney fee allocation, and security interest provisions all determine your leverage. Fix the contract before the next invoice, even if it's too late for the current one.
The Strategic View
The US commercial debt collection market is large, well-regulated for consumer debt, and surprisingly flexible for B2B claims. Foreign creditors who move quickly, use local representation, and understand the B2B/consumer distinction recover significantly more than those who approach the US with European assumptions.
Professional collection fees in the US typically run 15-33% contingency, with higher rates reflecting the competitive legal landscape and state-by-state complexity. The alternative — leaving US receivables uncollected — becomes very expensive very quickly.
Your US debtor isn't ignoring your invoice because they can. They're ignoring it because they think you can't. A local agent proves otherwise.
