As a collection agency, we obviously think that we’re in the best position possible to help you collect on unpaid invoices. But, we are sometimes asked for alternatives. We don’t take it personally, we know people like options. Here are four other ways you could potentially deal with unpaid invoices.
- Invoice Factoring
With invoice factoring you sell your unpaid invoices to a third party. The factoring company pays you a lump sum in advance and the invoice is then paid to them by your customer. If you are in a financial bind, factoring can provide immediate cash flow relief. Factoring companies do take a fee, which can be high, especially if you look at the annual cost of factoring receivables every month. If you have an invoice from a company that has been difficult to collect from, a factoring company is unlikely to accept that invoice. They may also require that you repay the advance if they aren’t able to collect the invoice. Factoring involves turning over a lot of your financial information to another company, so finding a company that you trust is important. Because factoring is not a loan, if your company has no credit or poor credit, you may find funding through invoice factoring easier to achieve than a loan.
- Invoice Financing
Invoice financing (also known as accounts receivable financing or receivables financing) is a loan that allows you to borrow money against the amounts due from customers. With invoice financing you retain control over the invoices and are still responsible for collecting any unpaid amounts. Accounts receivable financing can help you pay your employees or suppliers, and reinvest in operations earlier than you would if you had to wait for unpaid invoices to be paid. Invoice financing works best for businesses that are confident about when they will be paid, but still can’t wait for the payment to arrive. Invoice financing is a loan, so you will need to have good credit and will pay a percentage of the invoice amount as a fee.
A lot of people think that going to court should be the first option when facing an unpaid invoice. Sometimes, you need to take a debtor to court, but it’s not really recommended as a first step. Typically, it’s better to go to a collection agency first. A collection agency will usually have an attorney who will work on a contingency basis if litigation is your only chance of getting paid.
Trial dates are often a year out, creating more delay before you get paid. And they are expensive if you are paying hourly instead of using a contingency attorney. If a debtor declares bankruptcy or is out of business by the time you win a case, you most likely won’t get paid.
- Don’t Have Unpaid Invoices
Avoiding unpaid invoices is always our first recommendation. It sounds difficult, but taking simple steps such as checking for fraud, using credit applications, and making it easy for your customers to pay you can go a long way towards preventing the problem of unpaid invoices.
We know that approaching a collection agency can feel like a daunting experience. But we are really just here to help. Feel free to contact us at any time with questions.