Is Factoring Better than Collection Agencies?

Every business experiences the stress of growth while trying to remain profitable. Your business needs working capital for everyday operations, but what if your customers are slow to pay? This is when you could use a helpful solution to financial worries.

Several options exist for struggling business owners who need cash. You could acquire a conventional loan, but this depends on your credit and desire to take on the debt. Interest fees have to be considered, but the time constraint of long application processes can hinder you, especially if your budget is already stretched. Whether you’re just starting out or established, this might not be a viable option.

Factoring services and collection agencies provide solutions for business owners who need working capital. Depending on the age of your receivables and how fast you need the cash, these options could provide you with the funds you need to keep going.

Which One Is Better?

Factoring

If you need cash immediately, factoring could be the best solution. This alternative to conventional loans is the most cost effective and fastest when compared to hiring a collection agency. You can sell your invoices, usually those less than 60 days old, to the service for a 24-hour turnaround of available funds.

The company will first check the accounts receivables for creditworthiness. Once the service accepts your invoices, they will normally subtract a fee of 3 to 7 percent of the total and pay you the difference.

Collection Agencies

A collection agency will take on debts that are aged. If you have invoices older than 30 days, they will utilize various methods of collecting the money for you. The process could involve sending letters or making phone calls to the debtor. If the invoice goes unpaid, efforts might turn to legal action. Overall, you won’t get paid until the debt is collected. This could cost valuable time, but if you have no other way of collecting the money, it could be a way to recover at least a portion of the old invoices.

The fees for collection agencies are far more expensive than those of factoring services. Once the agency receives the money, you will probably be charged anywhere from 25 to 30 percent of the collected amounts before you receive your funds. The key here is the age of the account. If you have large accounts that normally pay on time but experience the occasional downturn, this type of service could be advantageous.

Your business depends on your cash flow. Factoring can keep you at full operating speed while you concentrate on the future instead of spending time collecting debts from the past.

 

To request factoring financing, please contact our team at Financial Capital Solutions today!