Debt Collection vs Invoice Factoring

Debt Collection vs Invoice FactoringIs getting paid late by your clients currently the bane of your existence? If you are a business owner that utilises invoices, this is likely a very familiar problem. You should know that you are not alone in your concerns, but there are solutions out there for you, two of which we will be investigating today.

As a small business owner, being paid on time is an extremely important part of your life. You likely have a family to support and a lot of bills to pay. This may have led you to searching for a debt collector to secure payment from customers you’re tired of chasing up. On the other hand, you may have considered factoring your invoices through the services of a trusted factor.

Which of these are the smarter option? Are there hidden implications you should be researching before making your final decision? The answer is a resounding yes. There are big differences that separate invoice factoring and debt collection, and we believe you should understand them fully before choosing either one.

Difference between Debt Collection and Invoice Factoring

You would use a debt collector for a very different reason to that of an invoice factor. The latter involves current unpaid invoices (no older than 30 days old), whereas debt collection revolves around invoices that are over 60 days past due.

  • Debt collection

It may be time to finally check in with a debt collection agency if you remain underpaid after a couple of months.

  • Invoice Factoring

If you enjoy receiving timely payment for your work instead of relegating your receivables to the bad debt file, you’ll want to connect with a reputable invoice factoring company; there are many to choose from online.

One of the advantages of working with a trusted company, such as us here at Invoice Funding, is that we’ll not simply factor your invoices; but we’ll also offer numerous back-office solutions, such as payment services, ensuring you receive payment on time for the work you complete. This means you’ll be getting the best of both worlds.

The funding timeline

There is a difference in the time it takes a debt collector and a factor to get your payment to you. So, the question you should ask yourself here is: “How quickly do I want to get paid?” How fast you can get your hands on cash can be a huge game changer in the world of business.

  • Debt collection

You’ll receive payment, but only after the collection agency has been paid by your customer. This can often be a timely process, sometimes not happening at all. This can also somewhat alienate your customer base, as it is a rather aggressive process. Perhaps with all this in mind, you may decide that debt collection agencies aren’t right for your venture.

  • Invoice Factoring

With factoring, you just sell your invoices at a small discount and receive instant money for your business. How quick does it actually come in? You get compensated before the factoring organisation receives any cash from your client— ordinarily inside 24 hours.

The fees attached 

Paying to be paid may seem like a strange concept, but it is sometimes needed for the modern-day business owner. Payment conflict wouldn’t exist in an ideal world, but here we all are. If you are tired of the back and forth between yourself and your customers, perhaps it is time to make a change.

  • Debt collection

Debt collectors come with hefty fees attached to them, which is one of the main reasons businesspeople are put off using them. The fee can be as much as 25% to 30% of the invoice total, which admittedly does beat giving up 100% of the cash, but there are better options out there.

  • Invoice Factoring

Getting paid for the work you do should not be the most difficult part of your job, in fact, it shouldn’t present any form of difficulty at all. Invoice factoring can be a great solution, though it is certainly not free of charge. However, you are paying for fantastic benefits that you won’t be able to get elsewhere.

You will receive immediate payment from your factor of around 70% or more, followed by the remaining total, minus a fee as soon as the full payment is collected from your customer.

You could get paid today 

Through working with us you can give your cash flow a boost and get paid today. As one of the UK’s leading Asset Based Lending Providers, we compare a range of Invoice Factoring, Invoice Discounting, Selective Invoice Finance and Trade Finance.

Thousands of businesses across the UK use invoice finance to leverage their unpaid invoices to provide an instant cash injection into the business. Contact us to Solve Your cashflow problems today.

If you’re ready to get started, feel free to contact a member of our expert team today and we’ll start factoring your invoices.

Fund Your Business

Speed up your cash-flow today. Forget issues caused by slow-paying customers