Factoring companies and collections agencies

Invoice factoring provides a complete and efficient cash flow solution for hundreds of thousands of business owners across North America. Well-established factoring companies offer clients much more than advances on their accounts receivable: they offer a service that works for businesses from before they even start a job for a customer and doesn’t stop until the payment is collected in full. Credit and collections services are just one part of the factoring service, but they are an important part that demonstrates how factoring companies work for their clients, before, during and after their clients work on a job for a customer.

Factoring brings clients a start-to-finish funding solution that begins with in-depth credit checks to protect clients from working for customers with questionable payment records. It ends with professional collections services to ensure that customers pay their bills when they said they would. The client’s factoring fee covers both services: the credit checks to reduce clients’ business losses and the dedicated collections process that goes even further to reduces any risk of business loss.

Some people wonder about the difference between factoring companies and collections agencies. Both may help businesses get paid for their work, but the similarity stops there. These two business services are very different, based on the nature of the debt and the relationship, as well as the cost to the business owner.

Type of debt:

  • Factoring works with current accounts receivable:

    up-to-date invoices that come with a creditworthy customer’s commitment to payment terms, typically ranging from 30 to 60 days. The factoring company’s collection team stays in contact with their clients’ customers to confirm their plans to pay on time and to resolve any anticipated problems, such as delayed paperwork, in meeting that commitment. The client and the customer, who has already passed a credit check, have an understanding that a job will be paid for in a timely manner.

  • Collection agencies work with old debt:

    payments that have not been received in 60 or 90 days or more. For months, clients have tried hard on their own to collect what is owed to them, with no success. For all kinds of reasons – customers don’t have the funds to pay for work that was completed, clients and their customers have some sort of dispute over the work or the bill, or the customers never intended to pay – a debt has not been paid.

Type of relationship:

  • Factoring companies’ relationships with debtors tend to be positive.

    Factoring professionals are highly motivated toward customer retention for their clients and they treat these debtors as if they were their own valued customers. It’s common sense: A good factoring company is strongly committed to its clients’ success and growth over the long haul because the factoring company will benefit right along with the client’s increased business. Factoring companies want these customers to continue hiring their clients for work and their collections teams are invariably courteous and responsive — and they get the job done.

  • Collection agencies’ relationships with debtors tend to be negative.

    A collection agency is hired when a business has failed on its own to collect. The business is ready to recoup or minimize its losses, even if it’s just pennies on the dollar, and the business has very little or no interest in working with this non-paying customer again. The collections agency will try everything to get a customer to pay, including frequent phone calls, letters, and legal action. Collectors have been known to be very strong in their communications as they try to persuade a customer to pay what is owed. There is rarely a long-term relationship or commitment to the client’s future business growth.

Type of fee:

  • A factoring company could charge an average of 3%-8%

    A  factoring company could charge an average of 3%-8%  to advance the client the majority of the invoice value immediately after a job is completed. That convenience charge ensures you don’t wait weeks or months to get paid and it covers other services in addition to credit checks and collections.

  • A collections agency could charge an average of 25%-50%

    A collections agency could charge an average of 25%-50% of the invoice value to collect on a debt. While the collections agency offers you only that one service of collections, it makes sense that its fee will be higher because of the age of the debt and the risk that a customer won’t pay. In addition, a collections agency might work for months before a bill is settled, which also means that the business owner will wait for months before seeing any funds.

Factoring companies and collections agencies each have their place in the business world, but both fill very different purposes. When you’re ready to enjoy the peace of mind and benefits that come with partnering with a well-established and trusted factoring company, call Interstate Capital today. The friendly staff, from the sales and marketing group to the account managers and collections team, will get you paid upfront and on the road to improved cash flow and increased profitability. Click here for an instant factoring rate quote.