A business may find their cash flow affected for numerous reasons, but if you don’t have enough capital to work with, you may find yourself in a race against the clock to make something work. Although many business leaders think factoring companies and debt collectors are the same, there are significant differences between the two.
Today we’ll dive into the differences and show you how factoring can keep your business afloat during hard times.
To get started, you’ll need to understand the difference between factoring and collections:
- Factoring is a financial tool used to increase cash flow and raise working capital without incurring debt through the sale of invoices at a discount.
- Collections refer to delinquent invoices that are normally over 60-90 days past due; this is a more aggressive course of action and cannot guarantee the clients will pay their debts.
Both factoring and debt collection can be beneficial, but making the right choice will heavily depend on your unique business situation. Read on to learn about the differences between these two options and to better determine what’s better for your organization.
What’s the Difference?
- Timeline: How long can you last without receiving payments? Invoice factoring is quick—you can typically receive money in a day while debt collection will produce payment only when the collection agency is paid by the customer.
- Reason: Invoice factoring and debt collection do not serve the same purpose. Factoring is for businesses who are dealing with current unpaid invoices that are no more than 30-60 days old, while debt collection better serves businesses that haven’t been paid for months after completing a job.
- Level of Difficulty: In general, factoring is the easier option—it’s quick, simple and seemingly painless for you. The factoring company will do all of the work and you’ll receive funds fast. On the other hand, debt collection can be tiresome and tricky to navigate. While you deserve your funds, getting collectors involved can sometimes soil business relationships. The process can drag out and even lead to legal action.
So what sounds right for your business? At Interstate Capital we know that factoring is often the most beneficial step to take. When you take the path of factoring invoices, you’re getting paid for the work you’ve done, you’re not receiving a loan or incurring debt. Factoring will not only get you your funds, but it can also help preserve existing client relationships.
Factoring is fast and flexible. You can read more about the process here.
Stay Out of Debt
Another benefit of invoice factoring is its ability to keep you out of debt. Factoring offers clients a complete funding solution that begins with in-depth credit checks to protect clients from working for customers with unreliable payment records and ends with professional collections services — all of it incorporated into the factoring fee.
Additionally, factoring fees could be much lower than what you’ll experience with debt collection agencies. Consider factoring a smart investment when you partner with Interstate Capital. We’ve been helping companies across North America maintain cash flow while growing their businesses for 25 years.
Get your FREE instant factoring quote today and one of our experts will be ready to guide you through the process!