Commercial debt collection laws: business and small business debt collection laws by state

Commercial debt collection is the recovery of money owed by one business to another, usually on an unpaid invoice or a trade credit line. It is distinguished from consumer collection by who owes the money and why: the obligation arises from a business transaction rather than a personal, family or household one.

That distinction is not a technicality. It decides which body of law applies. Consumer collection sits under a dense federal framework built around the FDCPA and Regulation F, administered by the CFPB. Commercial collection sits under contract law, the Uniform Commercial Code, and a patchwork of state statutes. The result is that a business collecting from another business has more freedom of action and less federal supervision, but also less certainty, because the rules change at the state line.

One caution worth stating early. The label on the customer matters less than the purpose of the transaction. A sole proprietor who buys equipment for the business is a commercial debtor. The same person financing a home appliance is a consumer. And an individual who personally guarantees a company's obligation is a natural person, which is the doorway several states have used to extend consumer style protection into commercial collection.

No, not to an ordinary business to business debt. The Fair Debt Collection Practices Act defines the debt it governs at 15 U.S.C. 1692a(5) as an obligation "arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes." An invoice for pallets, consulting hours or software licenses sold to a company is not that.

There is a second limit that matters just as much. The FDCPA regulates a "debt collector" as defined at 1692a(6), which centres on collecting debts owed to another. A business chasing its own receivables in its own name is a first party creditor and generally falls outside the statute even when the customer is a consumer. The important exception is the false name rule: if you collect under a trading name that suggests an outside agency is involved, you can be treated as a third party collector, and the whole federal framework lands on you.

So the practical test has two parts. Was the underlying transaction commercial? And are you collecting your own debt in your own name? If both answers are yes, the FDCPA is almost certainly not your problem. State law still is.

There is no federal statute that regulates commercial debt collection the way the FDCPA regulates consumer collection. No federal licensing scheme, no federal calling hours, no federal validation notice for a B2B invoice. This surprises people, and it is the single most useful thing to know about the area.

Federal law is not absent, though. The Telephone Consumer Protection Act governs how you place calls and send texts regardless of whether the underlying debt is commercial, so autodialled calls and SMS to mobile numbers need attention. The Uniform Commercial Code, adopted in some form by every state, supplies the rules for sales of goods including the 4 year limitations period at 2-725. Bankruptcy's automatic stay is federal and stops collection cold the moment a customer files. And if a federal agency is your customer, the Prompt Payment Act at 5 CFR Part 1315 and FAR 52.232-25 requires payment of a proper invoice within 30 days of receipt, with an interest penalty the agency owes without you asking for it.

As a general matter, the law of the state where the debtor is located governs collection conduct, which means a creditor selling into twenty states is potentially working under twenty sets of rules. A choice of law clause in your contract usually governs the interpretation of the agreement itself, but it does not reliably let you opt out of another state's consumer protection or licensing statutes.

In practice this matters in three places: whether a license or bond is required to collect, whether the state has extended consumer style protections to small commercial accounts, and how long you have to sue. The third is the one with a hard deadline, so calculate it first.

Below is an orientation table for the states that come up most often in commercial collection. Limitations periods are for written contracts and are displaced by the UCC 4 year rule where the claim is for the sale of goods. Bond figures are the amounts commonly required of third party collection agencies, not of a business collecting its own accounts. Confirm current figures with the state before relying on them.

Treat the table as a starting point for a conversation with counsel, not as the answer. Limitations periods interact with the UCC, with accrual rules, and with anything in your contract that shortens them.

This is the most misreported development in the area, and getting it right is worth real money to a California supplier.

SB 1286 amended California's Rosenthal Fair Debt Collection Practices Act to extend consumer style protections to "covered commercial debt" of $500,000 or less, effective 1 July 2025. Critically, the protected obligor is a natural person: someone who personally borrowed for business purposes or personally guaranteed a business obligation. A debt owed by an LLC with no personal guarantee was never inside it. The statute also reaches first party creditors, not just outside agencies, and violations carry private suits with damages, attorney fees and up to $1,000 for willful violations.

Then it changed again. AB 1521, signed on 1 October 2025 and effective 1 January 2026, amended California Civil Code 1788.2 to define "trade credit" for the first time and to exclude it from covered commercial debt. Trade credit means credit extended by a party whose primary business is supplying goods, materials, equipment or services, extended in connection with furnishing those goods or services, and it does not cover lease financing arrangements.

The practical effect: a California business collecting its own unpaid invoices for goods or services it supplied is dealing in trade credit, which is now expressly outside SB 1286. Most articles published in 2025 still describe the pre AB 1521 position and will tell you otherwise. If your arrangement is a loan, a merchant advance or a lease rather than an ordinary supply invoice, the analysis is different and you should take advice.

California has enough moving parts of its own, from the 10 percent default interest under Civil Code 3289(b) to the $6,250 small claims ceiling that applies to business entities, that it gets a dedicated page: see California commercial debt collection laws for the full creditor side treatment.

Usually yes for commercial debt, but only if you set it up in advance. Fee shifting in commercial collection is a matter of contract and state law, not of general fairness. The clause you want in your terms does two things: it sets a late interest rate, and it makes the customer responsible for the costs of collection including reasonable attorney fees.

Without that clause you are relying on whatever the state supplies by default, which is usually modest. Texas Finance Code 302.002 is a good example: where the creditor and the obligor never agreed a rate, the creditor may charge 6 percent a year on the principal, beginning on the 30th day after the amount is due. That is better than nothing and considerably worse than the 1.5 percent a month most trade contracts specify.

Watch two constraints. State usury caps limit what you may charge even by agreement, and they vary widely. And if the account turns out to be a consumer debt after all, 15 U.S.C. 1692f(1) bars collecting any amount, including interest, fees or charges incidental to the principal, unless expressly authorized by the agreement creating the debt or permitted by law. The safe habit is the same either way: write it into the contract, then charge only what the contract says.

The mechanics of applying a late fee, and what a defensible rate looks like, are covered in our guide to charging late fees on invoices.

Between 3 and 10 years depending on the state, with 4 to 6 covering most of the country, and the clock generally starts the day after payment was due rather than the day you invoiced.

Three refinements matter more than the headline number. First, UCC 2-725 imposes a 4 year limit on a claim for breach of a contract for the sale of goods in every state except Louisiana, and it commonly displaces a longer general contract period. If you sell products, assume 4 years unless you have advice to the contrary. Second, a partial payment or a signed acknowledgment of the debt restarts the clock in most states, which is why a customer who pays $500 against a $9,000 balance has just given you years of extra runway. Third, the published state by state tables circulating online are mostly built for consumer credit and are wrong for commercial invoices in several states, New York being the clearest example.

Once the period expires the debt is time barred rather than extinguished. You can still ask for payment and the customer can still choose to pay, but a court will dismiss the suit if the debtor raises the defense, and threatening litigation you can no longer bring is itself a risk. We go through the accrual rules and the state variation in detail in the statute of limitations on unpaid invoices.

Generally no. Collection agency licensing and bonding statutes are aimed at third party collectors, meaning businesses that collect debts owed to someone else. Around forty five states operate a license or registration scheme of some kind, with surety bonds ranging from roughly $5,000 to $300,000. Texas requires third party debt collectors and credit bureaus to file a $10,000 surety bond with the Secretary of State before engaging in debt collection. Florida sets $50,000 for commercial collections specifically.

None of that ordinarily applies to a company sending its own customer a reminder about its own invoice. What can change the answer is presentation. Collect under a name that suggests an outside agency, or set up a separate entity to collect the parent's receivables, and you may find yourself inside both the licensing rules and the FDCPA. Keeping first party collection visibly first party, under your own trading name, is the cleanest position and it is also the one customers respond to best. The distinction and why it matters commercially is set out in first party versus third party debt collection.

In descending order of aggression, and all of it lawful for a commercial account with a properly drafted contract: send reminders and formal demands in writing; charge the contractual late interest; place the account on credit hold and stop supply; report the balance to a commercial credit bureau such as Dun and Bradstreet or Experian Business; refer the account to a commercial collection agency on contingency; instruct an attorney to send a demand and file suit; and after judgment, pursue enforcement through garnishment, liens or levy under state procedure.

What you cannot do is roughly what you would expect. Do not misstate the amount owed or the consequences of non payment. Do not threaten criminal prosecution, arrest, or a lawsuit you have no intention of filing. Do not imply you are a law firm, a government body or an outside agency when you are not. Do not communicate in a way that would be abusive by any reasonable standard. Do not ignore a bankruptcy filing, because the automatic stay is federal and immediate.

The uncomfortable truth in most collection files is that legality is not the binding constraint. Consistency is. Businesses lose far more to invoices that were never chased on a schedule than to invoices that were chased too hard, which is why the operational fix usually beats the legal one.

Nothing on this page requires a lawyer to execute day to day. It requires that the same escalation runs on every account, in writing, on time, with a record. That is a scheduling problem, and it is the part almost every small finance team fails at, because chasing happens after the real work is done and there is never time.

DebtAgent works your open invoices as the first party creditor of record: reminders, escalating notices and formal demands go out under your own name, on the schedule you set, with every message logged. Because you stay the creditor collecting your own debt in your own name, you remain in the position this page describes, outside the third party collection framework. The price is flat and published rather than a percentage of what you recover, so a $40,000 invoice does not cost more to chase than a $4,000 one.

What software will not do is draft your terms, decide whether to sue, or tell you which state's law applies to a particular customer. Those are the moments to call an attorney. Everything between the due date and that decision is process, and process is what this handles.