If your business has fallen behind on a merchant cash advance or another commercial obligation, you are probably bracing for calls from the funder. What fewer owners realize is that the funder may not keep the account. Once a lender decides a debt is uncollectible, it charges it off. In accounting “charge off” means writing off an asset. At that point the lender has a choice. They can either keep the debt and attempt to use a commercial debt collection agency to recover it, or they can transfer the debt to a debt buyer. More and more lenders are choosing the second option, and if your account is sold, you may need to renegotiate a settlement with whoever owns it.
Lenders Treat Those Charged-off Loans Like an Asset
In the past, a charged-off loan was considered a complete failure. Lenders didn’t like charging them off because they represented a complete loss and an effort that had been wasted. Nowadays, though, lenders treat those charged-off loans like an asset and they sell them. The sale price gets counted as a recovery and the entire price goes to the lender’s profits. Since those charged-off loans aren’t likely to get better as they age, it’s not uncommon for lenders to sell them soon after they’re charged off, even on a monthly or quarterly basis.
Why not simply keep an agency on the job? Lenders that sell have found that the price a buyer pays is more than an agency is likely to recover for them. The sale of the portfolio also counts as a recovery. That means it comes straight to the lender’s bottom line, rather than being diminished by collection costs.
The sale itself moves fast. A lender who has a portfolio of notes that it wants to sell might send a potential buyer a spreadsheet listing a minimal amount of data on each account. The buyer will then do its own due diligence to make an offer on the portfolio. The purchase and sale agreement is negotiated once an offer is accepted. The entire process usually takes one to two weeks. Once the portfolio has been purchased, the process for subsequent sales should be a simple bill of sale if it’s a forward flow deal. The documentation is often sent electronically.
Who Owns the Account
The timing can be confusing for business owners. Some lenders sell an account the moment they decide it is uncollectible. Others let a collection agency work it first and sell it afterward, so you may hear from two different companies about the same debt. So when you get that call, the wise thing to do is check up on the company calling you, ask what its relationship is with your original lender, and how they obtained the account. What they tell you will let you know what your options are.
For you, the distinction that matters is this: a collection agency works for the lender. A debt buyer, on the other hand, has purchased the debt. When a lender uses an agency, the collection agency is acting on behalf of the lender, and therefore the collection agency’s actions will reflect on the lender. Regulators have recently been keeping a close eye on the actions of collection agencies, and some have been charged with illegal collection tactics. Lenders are unlikely to want that kind of exposure. The buyer, on the other hand, is acting solely on its own behalf as the title holder. In an arm’s length sale without recourse, the seller drops out of the picture. The lender no longer has an interest in your business. They sold your debt to the debt buyer. Buyers also commonly agree not to resell the account, so the company that bought it is usually the one you will deal with until it is resolved.
If the calls are still coming from a collection agency, the lender has not let go. The collection agency is collecting on behalf of the lender. The collection agency does not own the debt. Any settlement you reach is really a settlement with the lender, made through its agent. Once the debt is sold it’s a different story. From that point on you’re dealing with the new owner directly.
Make sure you get the full picture - by knowing who owns the account. If it’s been sold on a portfolio basis the original funder no longer owns the account and you have no ability to settle it directly. The buyer does. So contact the buyer, and get the backup documents they received from the original seller. They should have gotten these from the seller, but make sure they do. Keep in mind that the buyer priced your account from a spreadsheet with very little in it. As a business owner, that’s why it’s important you know whether your debt has been sold, and know what documents the buyer actually has.
Debt Buyers Are Different
Collection agencies tend to work the easy accounts and leave the rest. Debt buyers are different. Remember: the buyer is an account collection specialist. The whole point of them buying your account is that they think they can collect it. So don’t expect them to just walk away. But remember, this is a business, and they purchased the account as an investment. The way they get their return on that investment is with a negotiated payment. So be ready with a reasonable offer.
A sale is not all bad news. By the time an account is charged off, the relationship with the funder has often turned sour after months of failed collection attempts. By contrast, when a debt is sold to a buyer, the original lender cuts ties. The business owner no longer deals with the lender, and the buyer takes over the risk. That said, the buyer wants the same thing the lender wants: a return on their investment. But remember, they did buy the account, and they bought it for a price.
The bottom line for owners in 2026: more lenders are selling charged-off business debt on a regular schedule, which means the company calling you may not be the one you signed the deal with in the first place. Know who owns it, get the paperwork, and then negotiate. Now you can absolutely settle. You just have to find out what the terms are.
