Different Types of Businesses And How They Affect Collection

No two businesses are exactly alike, and there are many different types of business in today’s economy. It is important to understand the basic characteristics of 4 main types of businesses when beginning a collection effort, as the enterprise’s structure affects how you can collect on unpaid bills and who you need to speak to when contacting them.

This post will examine three very common types of business entity: the proprietorship, the partnership and the corporation. Each is structured differently and, as a result, your collection approach will need to be adjusted based on which type of business you are dealing with. In this post, we’ll give a very brief explanation of the structures of each of these entities and any specific advice we have about collecting from them.

Proprietorship: This is the most common type of business out there: most are small operations, and there is a single owner who runs the company. When somebody opens up a proprietorship, they take on the risk of the business’s finances: if the business owes money, they are personally liable for it. When collecting from a proprietorship, it is important you speak with the owner during your collection communications, as in the end he or she will be the one paying the business’s debts.

Partnership: A partnership is pretty self-explanatory: the business is owned by a group of at least two partial-owners, who run the business as a joint operation. If dealing with a partnership entity in your debt collection efforts, you may need to speak with more than one partner and may need to review the written agreement used to form the partnership to determine who is liable for the business’s finances. Find out who’s responsible for the business’s finances, and ensure your communication efforts focus on those parties.

Corporation: Corporations are very different from partnerships and proprietorship entities, as there is no individual responsible for the corporation’s debts. Many corporations are large companies and, by incorporating, divide ownership of the company into shares. Depending on whether the corporation is publicly traded or not, these shares are sold to investors through stock markets so as to divide ownership of the corporation across many different groups. Businesses can also purchase stock in other corporations, making it possible for corporations to own other corporations. When collecting from a corporation, you can’t chase down individual shareholders: they aren’t responsible for the business’s debt. Most shareholders, especially owners of publicly-traded stocks, aren’t even involved in any of the company’s management, but own stock because it’s a good investment. Because of this, your efforts should focus on the credit department of the corporation. Find out who’s in charge of paying bills and get a hold of them. You may also need to speak with higher-level management in order to get authorization for large payments, depending on the debt.

Of course, not every collection effort will be the same and you may need to pursue other parties than the ones we indicated in this article. However, our suggestions can serve as an guide in your future debt collection efforts with any of these three types of business.

About The Author:

Dean Kaplan is Principal at The Kaplan Group. Dean's exper­tise is widely rec­og­nized in the debt col­lec­tion indus­try. His advice has been pub­lished in a num­ber of indus­try newslet­ters such as Credit Today and InsideARM and he is a fre­quent speaker at indus­try events.