Commercial debt collection in California requires strategic planning, legal expertise, and a clear understanding of state regulations. If your business is dealing with unpaid invoices, defaulted contracts, or overdue commercial accounts, it’s critical to know your rights and remedies. This guide from The Grundon Law Firm outlines how to collect business debt in California while remaining compliant with evolving legal standards.
Understanding Commercial vs. Consumer Debt
Consumer debt includes personal, family, or household obligations, while commercial debt arises from business-to-business transactions. Consumer collections are regulated by the Fair Debt Collection Practices Act (FDCPA) and the Rosenthal Fair Debt Collection Practices Act (RFDCPA). Commercial collections, however, rely on contract law and the California Commercial Code.
The Rosenthal Act’s Commercial Debt Expansion Begins July 2025
Historically, California’s Rosenthal Fair Debt Collection Practices Act (RFDCPA) only applied to consumer debts—those incurred for personal, family, or household purposes. However, effective July 1, 2025, the RFDCPA will expand its protections to include certain types of small business debt under Senate Bill 1286.
This expansion applies to ‘covered commercial debts’ valued at $500,000 or less, including loans, lines of credit, and vendor accounts tied to individuals such as sole proprietors, independent contractors, or personal guarantors. These debts will be subject to many of the same rules and restrictions governing consumer debt, including prohibitions on harassment, misrepresentation, and improper contact with third parties.
Importantly, this change only applies to debts that are originated, renewed, assigned, or sold on or after July 1, 2025. Businesses and lenders must begin reviewing their internal policies and collection procedures now to ensure compliance when the new rules take effect.
At The Grundon Law Firm, we help our clients prepare for the Rosenthal expansion with updated collection strategies, and practical legal support tailored to the evolving regulatory landscape.
This expansion applies to ‘covered commercial debts’ valued at $500,000 or less, including loans, lines of credit, and vendor accounts tied to individuals such as sole proprietors, independent contractors, or personal guarantors. These debts will be subject to many of the same rules and restrictions governing consumer debt, including prohibitions on harassment, misrepresentation, and improper contact with third parties.
Importantly, this change only applies to debts that are originated, renewed, assigned, or sold on or after July 1, 2025. Businesses and lenders must begin reviewing their internal policies and collection procedures now to ensure compliance when the new rules take effect.
At The Grundon Law Firm, we help our clients prepare for the Rosenthal expansion with updated collection strategies, and practical legal support tailored to the evolving regulatory landscape.
Common Sources of Commercial Debt
Commercial debt may include unpaid invoices, defaulted service agreements, breach of contract claims, overdue credit lines, and personal guarantor defaults.
A Plan For Managing Past Due Accounts
Step 1: Strengthen Internal Credit and Collection Policies
Preventing delinquency starts with a proactive credit strategy. Always require a written credit application that clearly identifies the responsible party. Is your customer an LLC, a corporation, or just doing business under a fictitious name? Confirm the legal entity before extending credit.
Perform credit checks and ask for trade references. Consider requiring personal guarantees, especially if the business is new or has limited assets. Spell out payment terms, late fees, and recovery of attorney’s fees in writing.
Document everything. Keep signed contracts, emails, and payment records organized and accessible. If you ever need to litigate, a well-documented file can be the difference between winning and losing.
Step 2: Act Early and Consistently
Delinquent accounts do not age well. Review aging reports weekly. Flag anything 15+ days overdue. Send a polite reminder first, then escalate if payment isn’t received.
Have a clear, written collections protocol. Everyone’s timeline is different based on they type of business they are in. Whatever you decide, have a plan and a system for executing it. Here’s an example of a plan:
- Day 15: Friendly email reminder
- Day 30: Second notice with late fee
- Day 45: Phone call or mailed letter
- Day 60: Final notice
- Day 75–90: Referral to outside counsel
The longer you wait, the more leverage the debtor gains. Consider setting internal policy thresholds: at what point will you stop services or initiate legal action?
Step 3: Know the Legal Framework in California
Lawsuits are powerful tools, but only if filed properly. Know the applicable statute of limitations—generally four years for written contracts in California. Confirm venue: where does the defendant reside, or where did the contract take place?
Make sure your agreements include a provision for recovering attorney’s fees. Without it, you may win—but still lose money.
Step 4: Litigation and Judgment
Need help collecting unpaid business debt in California? Contact The Grundon Law Firm today to consult with an experienced California commercial collections attorney. We provide strategic enforcement services, from demand letters to litigation, judgment enforcement, and Rosenthal Act compliance. Protect your revenue—schedule your consultation now.