Are you an entrepreneur or small business owner? Are you looking for a way to easily collect the money that is owed to you? You have likely looked into debt collection agencies, as they offer a way to get your hard-earned money. However, there is another option out there that you may not know about. It is called factoring, and depending on your current situation, it can be more advantageous. In fact, if you are looking for an easy and alternative financing method to get your business off the ground all while collecting on invoices, working with a factor may be for you.
To understand how factoring can be so helpful, it is good to understand how it works and how it compares to debt collection. It involves you entering into a transaction. You will be selling your accounts receivable or invoices to a company who offers the service. The company first ensures the invoices are valid by contacting the customers. After approval, it is time for you to get paid. Your business can then be funded in a business day. Because the process is quick, you can get the capital you need fast to grow your business. If are having cash flow problems, factoring can improve your cash inflow.
Debt collection, on the other hand, involves you and a third-party company. This process is tedious. They will assume your debt, and then make efforts to collect the money. If their efforts prove unsuccessful, legal action may be necessary. This can be a drawn out procedure, and it may not be too helpful if you are looking to get paid fast. In addition, the fees associated with debt collection are higher than they are when you work with a factor. Collection is also usually used for debts that have been piling up for 60 or more days. When you work with a factor, you will be typically dealing with invoices that are from the past 30 days.
It is also important to understand the funding processes of each method. When you work with a collection agency, you will be paid for an old debt only after the collector has successfully received payment. With factoring, you will have the ability to receive money owed to you even before the company starts making attempts to get invoices that are unpaid. So, as you can see, this may just be the most beneficial method to use for entrepreneurs. Not only can it help them get paid, but it can also be used as financing for the business.