Business Research Tips 2018

[Tips For]-Customers Won't Pay? How to Choose a Collection Agency

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Customers Won't Pay? How to Choose a Collection Agency

By Jill Bowers, B2B Staff Writer September 22, 2017 10:30 am EST

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Collection agencies are focused on recovering debts that are past due. These companies often reach out to your unpaid accounts in a number of ways, including by phone, in writing and via email. In extreme cases, they may seek legal recourse on behalf of your company. And the method works – collection agencies are responsible for tens of billions of dollars recouped every year.

While there are many reputable collection agencies, there is a reason the industry has earned a bad rap. Some agencies rely on unscrupulous, harassing or illegal tactics to collect, and that's something to avoid at all costs, because it reflects poorly on your business. There are strict laws surrounding collections efforts, and any reputable agency will follow them.

Many people confuse collection agencies with debt buyers, although there are distinctions between the two. Debt buyers purchase debt for a reduced price — sometimes pennies on the dollar — and keep all the money they collect. Collection agencies, on the other hand, are paid a percentage of any outstanding debt they recover, but they don't own the debt. When they collect a debt, they hand the money over to your company, minus a certain percentage in fees.

If you've hired a collection agency, it is important to do your research first to understand what separates the good ones from the bad. It is also important to find a collection agency that is experienced, professional and familiar with your industry. Not every collection agency will be a good fit.

Editor’s Note: Looking for a collection agency for your business? If you’re looking for information to help you choose the one that’s right for you, use the questionnaire below to have our sister site, BuyerZone, provide you with information from a variety of vendors for free:

Is your business looking to collect from other businesses or individual consumers?

Please note: We CANNOT service requests for court settlements or personal debt.

Collect from businesses only

Collect from individual consumers only

Collect from both businesses and individual consumers

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When to hire a collection agency

Most companies send accounts to a collection agency when they are between 90 and 120 days past due. If you wait longer than that, you're far less likely to recover the debt. The more time that passes, the lower the chances. Generally, it's time to start thinking about hiring a collection agency if:
New customers do not respond to your first attempt to collect the debt. When you do not have a history of transactions with the customer, there's a greater chance they will refuse to pay.
You've agreed to a payment plan, but the customer does not follow through. Customers who still won't pay after you've agreed to meet them halfway with a payment plan are unlikely to change their minds.
A customer completely denies responsibility for the debt. Without a collection agency, these debts are rarely recovered.
The customer makes unfounded complaints about your business, product or service as an excuse not to pay. Most of the time, these complaints are just an excuse to get out of paying the debt.
The customer has a long history of being financially irresponsible.

Once you've exhausted your options and aren't getting anywhere with a customer on your own, the debt is better left in the hands of a professional agency that may recover at least a portion of what you're owed, if not all of it.

Choosing a collection agency

There are more than 4,000 collection agencies in the United States alone, and not all are alike. Some handle consumer accounts, while others specialize in business-to-business (B2B) collections, also known as commercial collections. The biggest firms often handle both.

Some collection agencies specialize in certain industries, such as medical, insurance, utilities, credit cards, mortgages or auto loans, while others work for a number of industries. There are agencies that cater to businesses of certain sizes (small business versus large corporation) as well as by region (local or national). Beyond basic collection efforts, some agencies provide additional services such as billing, telemarketing, accounting or business administration.

It is important to hire an agency with an established track record of successful collections in your industry. The agency needs to be familiar with the terminology in your industry, and the rules or regulations set forth by state or federal agencies governing your industry, if applicable. If you're in the medical field, for example, the agency needs to be well versed in insurance requirements, medical terms and important laws like HIPAA.

If you have consumer debt, find an agency that specializes in consumer debt. If you have business customers, choose one that specializes in B2B. If you have both types of debtors, consider dividing the debts between two collection agencies for more focused efforts and better results.

The hardest part of choosing a collection agency is narrowing down the search from the thousands of options. Here are some practical tips to help you get started.
Ask for referrals from your attorney, accountant or trusted business associates in your industry. Go beyond just asking for agency names and find out why the person is recommending that particular agency. Does it have a high success rate? Are they known for strict adherence to laws?
Search the ACA International directory to find a member agency licensed in your city or state. ACA International, the Association of Credit and Collections Professionals, is a nonprofit that establishes ethical standards for the industry and requires its members to adhere to them.
Check the Better Business Bureau for ratings on any collection agency you are considering. One or two complaints can be a fluke, but multiple complaints are a major red flag.
Make sure the company is state licensed and/or bonded, if applicable. Many states require one or both.
Find out where the agency is licensed. If you only do business locally, an agency that is licensed only in your state is just fine. If you have customers across the country, find an agency that is licensed in all states that require it.
Find out if the company is insured. Errors and omissions liability insurance (E&O) is often a sign of a reputable agency. E&O insurance provides coverage for claims brought by consumers for improper conduct such as harassment or slander. In many cases, that coverage is extended to your business. While E&O insurance is not required by any federal or state laws, it's a sign of good faith.
Visit the collection agency. Before you commit, sit down with the collection agency to learn more about them. There's a lot you can tell about whether the agency is reputable and a good fit simply by talking to them. Ask to see proof of results – what percentage of debts have they successfully collected? Find out which tactics and technologies the agency uses in its collection efforts. Ask for references, and take the time to check them. If the company doesn't seem like a good fit, trust your instincts and move on.
Don't worry too much about size. A large, national firm is not necessarily a better fit than a small, local one. It depends on your needs, the agency's strengths, its reputation and its track record.

Integrity, standards and legal issues

When choosing a collection agency, integrity and reputation are among the most important considerations. Never choose a company with questionable standards, even if the company gets results.

Developing a reputation for illegal and harassing methods of debt collection can damage your reputation, costing you current and future customers. In worst-case scenarios, your company can face litigation for a collection agency's illegal practices, even if you were not aware of its actions.

All consumer collection agencies are required to comply with a federal law regulating the industry known as the Fair Debt Collection Practices Act (FDCPA). It's important you know the law so you can hire a collection agency that abides by its precepts.

Under FDCPA, collection agencies:
Cannot call debtors before 8 a.m. and after 9 p.m. unless the debtor has agreed to it beforehand
Cannot call at inconvenient places; for example, if the debtor has requested to not receive calls from collectors at work, collectors can no longer call a debtor's employer
Must honor letters requesting that contact concerning a debt cease
Must contact a debtor's attorney if the debtor has one
Cannot contact third parties (including family and friends) more than once. They can only contact the third party to find a way to contact the debtor
Must send validation and verification of debt
Cannot threaten harm or violence
Cannot threaten garnishment or seizure of property or other legal action unless actually intending to take action (and legally allowed to take that action)
Cannot make false statements, such as that the debtor has committed a crime or that the collector is an attorney
Cannot send documents that look like court or legal documents but aren't

It's important to note that FDCPA only applies to consumer debt, not debt that someone accrued while running a business.

Many, but not all, states require collection agencies to be licensed and/or bonded. Always find out what your state requires, and check to find out whether the collection agency you're considering is compliant. While membership to ACA International is not mandated in any way, you're always better off hiring an agency that has it, because it means it has been vetted.

If you're dealing with commercial or B2B debt, look for a collection agency certified by the Commercial Law League of America (CLLA) and a member of the Commercial Collection Agency Association (CCAA). Like ACA International, both require commercial collection agencies to follow a strict code of ethics, to follow proper accounting principles and to be bonded. The CCAA, for example, requires a $300,000 bond, trust funds and a strong code of ethics.

Aside from the lack of proper licenses and certifications, there are red flags that can alert you that an agency may not be reputable. Past lawsuits should give you pause, and it's usually easy to find out about them with a simple Google search.

Fee structures

There are many factors that determine collection agency fees, including the size of the debt portfolio, the type of work required to collect the debt, the age of the account, the agency's experience and more. Most collection agencies have some type of tiered pricing structure, and most charge only when they collect.

Fees charged as a percentage of the collected debt are known as contingency fees, and are negotiable. Typically, they range anywhere from 10 to 50 percent, depending on the size of the debt.

Keep in mind that the lowest rate doesn't always mean the best results. The return rate is what's really important. If you pay a 25 percent fee on $1,000 worth of debt and the agency collects only $300 of that, your return is $225. However, if you pay 35 percent to an agency that collects $500, you reclaim $325.

In some cases, although far less often, a collection agency will charge a flat fee for its services. Typically, an agency will only agree to do this if the debt is less than 90 days old – otherwise known as precollection – or just over 90 days.

Technology and training

The best collection agencies have the proper tools and resources in place to ensure they see the highest returns, including technologies, partnerships with other agencies and attorneys, and a highly skilled and trained staff.

Technologies to look for include:
Skip-tracing services that are used to locate customers who are hard to find. Typically, these are databases that allow collection agencies to find debtors who have moved without leaving a forwarding address.
Digital technologies that go beyond just phone calls and snail-mail letters, allowing customers to negotiate payments or file a dispute online. These appeal to younger debtors and people uncomfortable discussing their debt with collection agencies over the phone.
Algorithm-based collections processes that tailor strategies to the debtor. This allows collection agencies to build a profile in order to better understand the customer and the right way to approach them. Often, email is the first form of communication versus a formal letter.
Online access that allows you to monitor the status of accounts, communicate with the agency and run reports on the status of your collections. This is especially helpful if you have a large number of accounts with the collection agency. It allows for real-time information rather than waiting around for weekly or monthly status reports.

Properly trained collectors are also crucial. You want to select a company whose employees are experienced and skilled negotiators. Find out if the collection agency's employees receive regular education and training. Courses are available through ACA and other membership organizations. If possible, arrange to listen in on a few calls before committing to a collection agency.

How to work with your collection agency

Beyond just choosing a collection agency, you'll need to put some effort into managing the relationship over time. You want a collection agency that works like a partner, not just a contractor. The agency should be willing to meet face to face periodically to review the status of your accounts, and they should promptly return phone calls and emails – ideally within one business day.

There's work to do on your end, too. To promote the highest possible returns, you should provide the collection agency with as much information about the debtors as possible, including:
Names, addresses and telephone numbers
Cellphone numbers and email addresses
Names of the debtor's spouse, friends, relatives and neighbors
Information about whether the debtor has responded to your debt collection efforts, and if so, how
Details about the purchase or transaction, including the date
Any paperwork related to the transaction, including contracts and credit applications
Nicknames, maiden names and aliases

Although you are paying a collection agency for their experience, judgment and expertise, the agency can better do its job when you provide as much information as possible. The more information the agency has, the more money you collect.

Vendor List

Below is a list of collection agencies available to collect debts across the United States. Business News Daily only listed vendors with accreditations from organizations like the BBB, ACA or another similar organizations.

We considered BBB ratings in our evaluation, and looked at the number and quality of complaints against each company. We mainly considered complaints filed by businesses that hired the agencies, and not from debtors, though some debtor complaints were considered and thoroughly researched if there were recurring reports of illegal collection practices.

Aargon Collection Agency – Aargon has offices in Nevada, Hawaii, Florida, Colorado and Missouri, but it collects debts nationwide. It combines technology with debt recovery strategies to all industries, though it has specialized services for medical debt and utility company debt. This collection agency has its own compliance department to ensure compliance with federal and state laws, including FDCPA. Aargon.com

Account Management Systems – AMS collects commercial debts. Based out of Tampa Bay, this debt collection service collects debts nationwide, charges no upfront or sign-up fees, and only collects money if they collect your debts. Amscollects.com

Aspen National Collections – Aspen National Collections works with the timeshare, education, municipal and utility industries to collect outstanding debts. It creates debt collection strategies tailored to each company it works with. This agency's website has an online portal so that clients can login and check their accounts to see the progress being made on their past-due accounts. Aspennational.com

Client Services Inc. – CSI combines roll-rate and liquidation results and technology like voice analytics software to ensure compliance with collection laws. It is PCI-DSS compliant and has several safety certifications. In addition to collection services (pre charge off), it also offers recovery services (post charge off). Clientservices.com

CollectionCenter, Inc. – CollectionCenter, Inc. has offices in Wyoming, Colorado and Utah. It offers precollection and bad debt collection, litigation, online account access, health care payment system and more. Debtors can make payments over the phone, via mail or online. Mycollectioncenter.com

Credit Management Company – Founded in 1966, Credit Management Company recovers debts for government, health care, higher education, financial services and commercial businesses. It has an online system for debtors to make payments. In addition to collection services, it also offers claims resolution services. Creditmanagementcompany.com

Debt Recovery Resources – This is a full-service debt collection agency that not only helps recover debts but can help its clients improve internal debt collection processes. Debt Recovery Resources can manage accounts receivable, perform free legal background checks, search and find debtors, and more. Debt-rr.com

Firstsource Advantage, LLC – Firstsource works with health care providers, credit card issuers, universities and financial institutions to collect debts that are past due, and is a global top 20 collections service provider. This collector uses technology, internal audits, legal oversight, regulatory compliance and other methods to collect debts. Firstsourceadvantage.com

National Association of Credit Management – The NACM is an advocate for financial management and business credit professionals, and it also has its own collection service. Collections begin with contact that demands full payment. Phone call intensity increases as time goes by until debts are collected. NACM can also contact its affiliates to connect with bonded attorneys to work toward retrieving your debt. Nacm.org

Nationwide Credit & Collection, Inc. – NCC focuses primarily on health care finance collections and offers many services, including past due and final notice letters, payment plan management, credit bureau notification, legal action (if necessary), Medicare bad debt and more. Debtors can make payments toward their account online and can request verification of debt on NCC's website via its ecomply form. Ncc.us

Prestige Services, Inc. – PSI is available nationwide to collect commercial debt. It's been in business over 20 years, and its staff has over 50 years of collective experience. It provides professional skip-tracing to help locate debtors, and it can investigate businesses. If the debtor won't pay even after all of PSI's efforts, the agency can forward the account to an attorney in the debtor's area. Psicollect.com

Progressive Financial Services, Inc. – With offices in Pennsylvania and Arizona, Progressive Financial Services, Inc. works across the United States to collect debts. This agency focuses on mediating with debtors rather than confronting them, and works to find a solution for all parties involved in the debt. Progressive provides secure file transfer so that debtors can upload important documents related to their debt. Progressivefinancial.com

Recovery Solutions Group – RSG collects commercial debts. In addition to its substantial national attorney network, it employs private investigators to handle business accounts. It can collect debts in the U.S. and internationally and manages accounts receivable. It specializes in HOA assessment fee recovery and fire and water debt recovery. Rsgcollect.com

Revenue Assurance Partners – This solution customizes its service to your business. You can outsource as many or as few internal processes as you want, and Revenue Assurance Partners will work with you. This company has over 50 years of experience collecting past-due accounts. It also provides auditing, reporting, legal forwarding and other collection services. Rapcollect.com

Rocket Receivables – This debt recovery agency supports small- and mid-sized businesses. It offers fixed-fee pricing and a guarantee that you'll make double the money you invest in the agency. A more advanced service is available on debts that are more than 120 days delinquent. These are contingency collections, meaning that you'll split the recovered funds 50/50. Rocketreceivables.com

Transworld Systems – Servicing the medical, dental and education industries, Transworld Systems provides services with collections, loans, billing and analytics. Full-service efforts range from asset investigation to legal action. It has contingency pricing, meaning that if the debts aren't collected, you don't pay the agency. Tsico.com

Tucker, Albin & Associates – This collection agency has a network of over 500 private investigators and attorneys to help with debt collections. These services are available across the globe. It only collects commercial debts, not consumer debts. Tuckeralbin.com

VeriCore – This international collection agency focuses on recovery, reporting and remittance. It claims to have recovered debts on every continent and has the ability to report companies to the U.S. Embassy and the Commerce and Trade Division of the U.S. Government. Services are available in over 130 languages via interpreters. Vericore.com

Your Collection Solution – This collection agency collects consumer and commercial debts. It only collects a fee when they collect a debt. Though headquartered in Florida, Your Collection Solution can follow up with debtors located across the United States and in several other countries. This debt agency's management team has over 30 years of experience in the industry. ycscollects.com

Additional reporting by Ashley Smith.

Jill Bowers
Jill Bowers is a technical writer by day and a fantasy author by night. She has more than 10 years of writing experience for both B2C and B2B content, focusing on topics like travel writing, consumer finance, business marketing, social media marketing and other business categories. She spends an inordinate amount of time singing love songs to her dog, composes handbell music and writes YA fantasy novels.

Thank You So much -Businessme2018

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Factoring: What It Is and How to Choose a Service

By Lori Fairbanks, B2B Editor September 12, 2017 12:15 pm EST

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Invoice factoring is a form of alternative financing in which a business sells some or all of its outstanding invoices to a service, known as a factor, for an upfront percentage of the total value. Then, as the factor collects the outstanding payments, it returns the remainder (called the rebate) to the business, minus a predetermined fee. Factoring services primarily work with businesses that provide goods or services to other businesses or to the government, and use invoicing to bill their customers.

Factoring differs from traditional lending in that it's more accessible to businesses with less-than-perfect credit and there's no restriction on how you use the money. It's also faster: Applications are shorter and require less documentation, approvals are quicker, funding is provided promptly, and financing is repaid within weeks or months (typically 30 to 90 days) rather than years.

While rates are relatively low if your customers remit their invoice payments quickly, factoring can be more expensive than other financing options if your remittance terms are long, your customers are slow to pay or you need long-term financing. As you evaluate whether a factoring service can help your business improve its cash flow, consider the following questions:
Will this type of financing help your business grow?
How much does it cost to work with a factor?
Is there a contract? Are there minimums? What should you look for in a factoring service?
What type of factoring service should you use?

We'll help you answer these questions, but if you already know what you need and just want to see our recommendations for the best factoring service, visit our best picks page.

Invoice Factoring Can Improve Cash Flow

Factoring can help you access capital quickly and is best used as a short-term solution that assists you in keeping your businesses running while you wait for customers to pay outstanding invoices, or allows you to take advantage of time-sensitive opportunities to help your business grow. For example, if you're waiting to receive payment on several large invoices but need money now because one of your suppliers is offering a significant discount if you purchase a certain dollar amount of products within a specific time frame, a factoring advance may be a good solution. Here's a real-life example of how invoice factoring helped a small business grow:

Eco Nuts, an organic soap nut retailer that appeared on Season 4 of ABC's "Shark Tank," was unable to secure an investment deal, but it still had a large purchase order from a major retailer on the line. The company opted to work with the factoring company BlueVine to successfully fill the order. [See Related Story: BlueVine Review: Best B2B Factoring Service]

"When [Eco Nuts] came to us, they were limited by the working capital they had on hand to meet that demand," said Edward Castaño, former vice president of marketing at BlueVine. "They had so many outstanding invoices from TJX (the parent company of T.J.Maxx, Marshalls, HomeGoods and the Sierra Trading Post) that it made it hard for them to fulfill orders."

According to Castaño, Eco Nuts didn't have the cash to purchase the supplies and cover the salaries to fill the new orders, which put its growth trajectory at risk.

"[Eco Nuts] used our invoice financing solution to unlock the cash trapped in their invoices to fulfill new orders and maintain their growth trajectory," he said.

Editor's Note: Looking for information on factoring services? Use the questionnaire below and our vendor partners will contact you to provide you with the information you need:

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$100,000-499,999

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How Does Factoring Work?

To meet eligibility requirements for most factoring services, your customers' accounts must be in good standing. Some factoring services also consider other qualifiers, such as your annual revenue and how long you've been in business.

The factor conducts due diligence to determine the creditworthiness of your customers and whether they're capable of paying their invoices on time. This is an essential step, as factors typically don't function as collection agencies.

After approving your customers, the factor reviews outstanding invoices and inspects them for accuracy and completeness, verifying with your customers that the invoices are genuine, the products or services have been received and accepted, and the invoice dates are correct. If everything's in order, the factor typically requests payment from your customers by sending them a notice of assignment that instructs them to send invoice payments directly to the factor.

The Advance

After you've selected which invoices you want factored, the service advances you money, typically between 70 and 90 percent of the invoice value. Most companies transfer the money to your account using an ACH transfer, which can take around two business days to receive. Wire transfers are often available, though you'll pay a fee for the convenience of receiving your money the same day you request it.

The Rebate

After your customer pays the invoice, the factor forwards the remainder to you, minus its service fee.

"The bottom line is that [the business owner] wants to get paid for their work right away," said Kevin Gowen Sr., founder, president and CEO of AmeriFactors Financial Group. "The deal isn't over until the customer has paid the invoice and the check has cleared the bank."

How Much Does Factoring Cost?

Factoring fees usually range from 2 to 6 percent of the invoice total. This fee is known as a discount rate, and your specific rate will be determined by your creditworthiness, invoice volume and size, customer base, industry risk, client credit history, and billing structure. As with other financing options, the more risk the lender takes on, the more you'll pay in fees.

Rates may accrue weekly or monthly. When you call for a pricing quote, you'll want to ask whether it's a weekly or monthly rate and how frequently the rate increases. Some factors quote a monthly or 30-day rate that increases each additional 15 days, but many quote a weekly rate that increases every seven days.

Fees may be based on the advance or the full amount of the invoice. As you call for quotes, you also want to ask whether the fee is based on the full invoice amount or only the amount of your advance. As most companies advance between 70 and 90 percent of the invoice value, choosing a company that charges only on the advance saves you quite a bit on fees.

Factoring is expensive if you have long remittance terms or slow-paying customers. If you have long repayment terms or your customers tend to pay late, longer-term financing, such as a bank loan, may be more cost-effective than factoring. Although 2 to 6 percent sounds very low, keep in mind that this is only for the week or month, depending on the factor's terms. If you're quoted a 1 percent fee that compounds weekly and your invoice remittance terms are 30 days (around four weeks), you'd pay 4 to 5 percent – if your customers pay on time. If your terms are longer or your customers pay their invoices late, factoring gets expensive. For example, for a 60-day remittance, you'd pay 8 or 9 percent, and for 90 days, you'd pay 12 to 13 percent.

Some factors charge additional fees. Although the best factors only charge a percentage of the invoice advance, some charge a variety of fees. When you call for a quote, you want to ask the sales rep if the factoring company charges any of the fees listed below. You also want to read the contract or terms of service and to verify which fees the company charges before signing up for a service. Possible fees include the following:
Application fee: This fee covers the costs of reviewing your application, setting up your account and screening your customers.
Bank transfer (ACH) or wire fees: Most factors provide ACH transfers for free but pass the bank's wire transfer fee on to you.
Credit check fee: Sometimes included with the application or due-diligence fee, this fee for checking your customers' credit may be charged separately or when you bring on new customers (this may be called a new client fee).
Due-diligence fee: Similar to the application fee, companies may charge this fee for the costs involved with checking your credit and your customers' credit, and verifying that your customers and invoices are authentic.
Early termination fee: If you sign a contract and decide to close your account before the end of the term, you may be charged a penalty.
Lockbox fee: If the factoring service sets up a lockbox for your customers to send invoice payments to, you may be charged a fee.
Service fee: This fee may be charged monthly and covers costs associated with maintaining your account.

Other Considerations

In addition to rates and fees, you'll want to ask the factoring service about its terms, including the following:
How long is the contract? Although some factoring services are willing to work with you on an as-needed basis, others require you to sign a contract. If this is the case, ask how long the term is, what your obligations are, if it automatically renews at the end of the term, what the cancellation procedure entails and what fees you'll incur if you close your account early.
Is there a reserve account? To mitigate their risk, some factors hold a portion of your invoice payments in a reserve account. For example, the factor may reserve 10 to 15 percent of your credit limit.
What is the monthly minimum? Some companies require you to factor a certain dollar amount or number of invoices each month. If you fail to do so, the company charges a fee to compensate for the money it expected to make from your account.

Which Type of Factoring Do You Need?

As you evaluate factoring services, you need to decide which type of factoring you need. For instance, do you need a service that factors all of your outstanding invoices, or do you want to choose which invoices to factor? Do you prefer to continue receiving payments from your customers, or are you comfortable handing collections over to the factoring company? Do you want to be held responsible to the factoring company if customers don't pay? Keep the following types of factoring in mind as you evaluate factoring services.

Bulk Factoring vs. Spot Factoring

Bulk or whole-ledger factoring: With this type of factoring, you turn over all of your invoices to the factoring service for a set period. You're usually required to sign a contract, and there are typically monthly minimums and additional fees associated with this type of service. However, rates are usually lower.

Spot or single-invoice factoring: You can choose which invoices you factor with this type of service. There's normally no monthly minimum or contract requirement, but rates are higher. If you only plan to use a factoring service intermittently, or you only want to factor invoices from certain customers, this is the type of service to look for.

Recourse vs. Nonrecourse Factoring

Recourse factoring: This is the most common, readily available and cost-effective type of service. In this setup, the factor funds your invoices but requires you to provide a refund on any invoices that remain unpaid after a certain amount of time. Since you assume the risk, rates are lower.

Nonrecourse factoring: This type of factoring releases you from any liability for delinquent invoices. However, since the factor assumes the risk of unpaid invoices, this type of factoring costs more and the creditworthiness of your client roster will be more closely scrutinized.

Notification vs. Non-Notification Factoring

Notification factoring: The majority of factoring services require you to send your customers a notice of assignment instructing them to remit invoice payments directly to the factor.

Non-notification factoring: Some factors don't require a notice of assignment, so your customers never have to know you're using a factoring company. These factors allow you to continue receiving payments from customers as if nothing has changed; you then forward the funds, plus fees, to repay the advance.

However, the factoring services that offer non-notification factoring may function a little differently from those that notify your customers. Your rates may be higher, there may be a repayment schedule, and late fees may be applied to your account if you fail to repay the advance on time.

For instance, Fundbox, our pick for the best factoring service for very small businesses, advances 100 percent of the total invoice value. You repay the advance, plus a weekly fee, over a 12- or 24-week term. The advantage is that you remain in control of your receivables and, if you can repay the advance early, you can save money, since there's no early repayment penalty. However, the prorated repayment and weekly fee are automatically withdrawn from your business bank account, which may be problematic if you're still waiting on an invoice payment and cash is tight. [See Related Story: Fundbox Review: Best Factoring Service for Very Small Businesses]

Is Factoring Right for Your Business?

Factoring may or may not be the right financing option for your business. However, if your day-to-day operations are suffering due to large outstanding invoices, you don't qualify for bank loans or lines of credit, or you need cash quickly and don't have time to apply for traditional financing, you should consider factoring.

The potential downside to factoring is that the fees can add up quickly, and it may end up being more expensive than a loan or other types of financing. You need to consider whether immediate access to working capital is worth the higher price, and whether factoring will help your business expand or recover while achieving specific long-term goals or if it will exacerbate existing issues.

Factoring is most beneficial to those with a reliable client base and a net 30 or net 60 payment structure. Factoring isn't a solution for companies in dire financial situations. If your company has substantially more accounts payable than accounts receivable, factoring is probably not a good idea.

Expert Advice for Choosing a Factoring Service

Once you've determined that factoring is the right financing option for your business, it's time to look for the service provider that will be the best fit.

"You want to work with someone that you trust and is transparent," Einat Steklov, president of Coral Capital Solutions, told Business News Daily. "It's good to ask questions. You want to work with a company that is experienced."

Steklov suggests asking contacts within your business community to provide references to help you find a great factoring company.

"You need to trust the person who makes the introduction for you, not unlike looking for a supplier that is critical to your business," Steklov said. "In the case of the supplier, you like to see the product when choosing it. When choosing a factoring company, you need to make sure they've factored before.

"Overall, factoring is a simple finance transaction," Steklov continued. "Factors want their clients to grow and be successful. Their success is our success as well. We grow together with our clients."

Ready to choose a factoring service? Here's a breakdown of our complete coverage:
Factoring: What It Is and How to Choose a Service
Best Factoring Services for Small Businesses
American Receivable Review: Best Factoring Service for Small Businesses
Fundbox Review: Best Factoring Service for Very Small Businesses
BlueVine Review: Best B2B Factoring Service

Additional reporting by Sara Angeles, Shannon Gausepohl and Adam C. Uzialko.

Editor's Note: Looking for information on factoring services? Use the questionnaire below and our vendor partners will contact you to provide you with the information you need:

How much in new accounts receivable do you want to factor every month?

$5,000-9,999

$10,000-29,999

$30,000-49,999

$50,000-99,999

$100,000-499,999

$500,000+

NEXT ▷

Lori Fairbanks
Lori Fairbanks has years of experience writing and editing for both print and online publications. After graduating from Brigham Young University with a Bachelor of Arts in English, she worked as an editor for Creating Keepsakes magazine and then as a freelance writer and editor for a variety of companies, including marketing firms and a medical university. She joined Purch in 2014 as a senior writer for Top Ten Reviews and now writes for Business.com and Business News Daily.

Thank You So much -Businessme2018

[Tips For]-Best Factoring Services 2017

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Best Factoring Services 2017

By Lori Fairbanks, B2B Editor September 12, 2017 12:15 pm EST

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Invoice factoring can improve your cash flow by unlocking the cash tied up in your pending receivables. The best factoring services approve businesses quickly, fund a high percentage of invoice value upfront and charge low fees. They also provide funding promptly so you have the cash flow you need to take advantage of time-sensitive growth opportunities.

Here's a roundup of our 2017 best picks for factoring services and details about how we chose them. For an in-depth look at which features to consider as you choose the right factoring service for your business, check out our buyer's guide: Factoring: What It Is and How to Choose a Service.

Best Factoring Service for...

Small Business Overall

American Receivable

Up to $4 million
Funds 95 percent of invoice value up front; balance paid after customers pay, minus fees
Fees: 1 percent of total invoice amount

Read Review

Very Small Businesses

Fundbox

$100-$25,000
Funds 100 percent of invoice value upfront; fees added to repayment
5-7 percent of total invoice amount

Read Review

B2B Businesses

BlueVine

$20,000-$500,000
Funds 85-90 percent of invoice value up front; balance paid after customers pay, minus fees
0.4 – 1 percent per week

Read Review

Best Factoring Service for Small Businesses: American Receivable

American Receivable has been providing factoring services to small businesses since 1979, so you know you're working with a company that has a proven track record. It charges low rates, starting at 0.8 percent, and gives you fast access to your funds, providing advances within 24 hours of your request. It advances up to 95 percent of invoice amounts, which is better than the industry average of 70 to 90 percent. American Receivable approves businesses within 24 hours, and there are no startup, application, maintenance or repayment fees. [Go here for a full review of American Receivable.]

Editor's Note: Looking for information on factoring services? Use the questionnaire below and our vendor partners will contact you to provide you with the information you need:

How much in new accounts receivable do you want to factor every month?

$5,000-9,999

$10,000-29,999

$30,000-49,999

$50,000-99,999

$100,000-499,999

$500,000+

NEXT ▷

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Best Factoring Service for Very Small Businesses: Fundbox

Fundbox is a newer company that's changing the way factoring is done – and that's great news for very small businesses. Fundbox has a low barrier to entry, so even microbusinesses may qualify for invoice financing from this company. Fundbox's application process is simple: You sign up for a free account and connect your accounting software. Once approved, you can use your online account to draw advances against your unpaid invoices – no paperwork required. Fundbox is rare in that it advances 100 percent of invoices and has friendly repayment terms that reward you for repaying advances early. Current customers rave about Fundbox's excellent support team and quick funding time, as the company wires advances to your bank within 24 hours of approval. [Go here for a full review of Fundbox.]

Best B2B Factoring Service: BlueVine

BlueVine is another factoring company that's modernizing how invoice financing is done. Its minimum requirements are very simple: You must have been in business for at least three months, with revenues of at least $10,000 per month, and have a personal credit score of 530 or better. The company offers flexible factoring, allowing you to request as many invoice advances as you wish within your available credit line, which may be up to $200,000. BlueVine also offers lines of credit up to $100,000, though the minimum requirements are higher. BlueVine provides fast, friendly customer service that has earned it five-star ratings from Trustpilot and QuickBooks. [Go here for a full review of BlueVine.]

Our Methodology

To find the best factoring services for small businesses, we listed companies that are well known in the industry and have positive feedback from customers. We also added companies that appear on reputable online sources, such as review sites and business websites.

To grow our list, we asked small business owners which factoring companies they use or have worked with in the past. We also asked them what they liked and disliked about these vendors, and whether they'd recommend them to other small businesses. This helped us gain insight into the qualities business owners expect from a factor and what sets a factoring service apart from the competition.

Next, we researched the vendors on our list and narrowed them down based on use-case scenarios, which are our Best Picks categories. Our extensive research included reviewing each factoring company's website, studying its history and reputation, watching videos, and reading both customer and business reviews.

We also personally reached out to companies as potential customers in search of a factoring service. We spoke to sales and customer service representatives and asked about service terms, pricing details and contract requirements. This helped us learn more about these companies, giving us information that isn't readily available on websites or from other sources, while also helping us evaluate each company's quality of support.

Here are the criteria we used to evaluate each factoring service:
Rates, transaction fees and other costs
Percentage of invoices the company will advance upfront
Repayment terms
Application process
Minimum requirements
Ease of approval
Approval and funding time
Whether a contract is required
Notice of assignment (if customers will be notified to redirect payments to factoring company)
Additional services, such as loans and lines of credit
Positive feedback from customers
Reputation and how long each company has been in business
Third-party integrations, such as accounting or invoicing software
Customer service
Service limitations

Here's a full list of factoring services and a summary of what each company claims to offer. This alphabetical list also includes our best picks.

1st PMF Bancorp – 1st PMF Bancorp offers domestic and foreign factoring services. It also provides other financing options such as business loans, trade financing and credit insurance. You can apply online, and the company can approve your application within 24 hours. If your account is approved, you can receive funding within 48 hours. invoicefactoringus.com

Accutrac Capital – Accutrac Capital specializes in serving American and Canadian businesses in the trucking and transportation industry. In addition to receivables invoice factoring, the company provides cash advances, bulk-buy discounts and equipment financing. accutraccapital.com

Alliance One – Alliance One offers factoring services to both small and midsize companies, newly formed or well established, across a variety of industries, including B2B, manufacturing, freight and staffing. Whereas some factoring services are only available in certain regions, Alliance One provides funding services to all 50 states. allianceonellc.com

altLINE – A service of The Southern Bank Company, altLINE provides invoice factoring for many business types, including manufacturing, textile and apparel, staffing, consulting and professional services. The bank offers a free application, same-day funding and competitive rates. AltLINE fits businesses that prefer working with an FDIC-regulated bank, even if they've been turned down by their own bank for a business loan. The invoice factoring program considers the creditworthiness of your customers and works with young businesses, including startups. altline.sobanco.com

AmeriFactors – AmeriFactors has been in business for over 25 years and partners with Gulf Coast Bank & Trust Company. It provides asset-based loans, accounts receivable financing (factoring) and business cash advances. You can apply online and receive a response, or the money transfer, within 24 hours. Once you're an established client, the company can fund your factored invoices in as few as four hours. amerifactors.com

*American Receivable – American Receivable is our pick for the best factoring service for small businesses. It has low fees – starting at 0.8 percent – and advances up to 95 percent of invoice amounts. There are no startup or application fees, long-term contract, or early repayment penalties. You can apply online and receive approval within 24 hours and next-day funding. Read our full review here. americanreceivable.com

Apex Capital Corp – Apex Capital Corp offers full-service freight factoring to small and midsize trucking companies. It allows you to choose between recourse and nonrecourse factoring and doesn't require you to sign a long-term contract. It provides same-day or next-day funding via ACH, wire, check or Apex fuel card. apexcapitalcorp.com/factoring

Bay View Funding – Bay View Funding offers invoice factoring for businesses in many industries, including manufacturing, oil and gas, trucking, and those with government contracts. It has an online application, and once your account is approved, it can fund your invoice advances in as little as 24 hours. bayviewfunding.com

*BlueVine – Our pick for the best B2B factoring service, BlueVine offers 24-hour approval and no long-term contracts, minimums or hidden fees. To qualify, you must be in business for at least three months, have revenues greater than $10,000 per month, and have a personal credit score of 530 or better. In addition to factoring, a traditional line of credit is available from BlueVine. Read our full review here. bluevine.com

CapitalPlus – If your business is in the construction industry and has limited or no credit history, CapitalPlus can help. It advances 80 percent of invoice amounts and provides same- and next-day funding via wire or ACH. It has no long-term contract, no monthly minimums and an all-inclusive fee. capitalplus.com

Charter Capital – Charter Capital offers factoring services for various industries, including trucking and freight services, staffing, manufacturing, and security firms. It has low rates and same-day funding with no long-term contracts, and you can apply online for a quote. chartercapitalusa.com

CIT Commercial Services – CIT Commercial Services is the factoring arm of the CIT Group, which provides numerous banking services, such as commercial lending and consumer banking. Its factoring services include both notification and non-notification factoring, international factoring for businesses that import and export goods, and select credit accounts receivable protection. cit.com

Coral Capital Solutions – Coral Capital Solutions provides customers with working capital through purchase order and accounts receivable factoring, asset-based loans, contract financing, and specialty financing. The company uses its own equity to quickly provide funding. coralcapitalsolutions.com

Creative Capital Associates – Creative Capital Associates provides factoring services for a variety of businesses, including those in the technology industry and government contractors. It works with small businesses nationwide, including new companies that lack a credit history. Although it can take seven to 10 days for initial funding, which is longer than most factoring companies, later funding can be provided on the same or next day. ccassociates.com

Crestmark – Crestmark is an FDIC-insured bank that offers discount (recourse) and traditional (nonrecourse) factoring services to businesses of all sizes, from startups to those with $100 million in annual sales. You can get advances daily if necessary, and they provide accounts receivable bookkeeping, web-based reporting, customer investigation and approval, and more. crestmark.com

Factor Funding Co. – Factor Funding Co. provides multiple financing services for small businesses, including factoring. It doesn't have a set minimum or maximum factoring volume, and you can choose which invoices to factor. There are no startup or application fees, but it requires a personal guarantee, there may be due diligence fees, and you may have to sign a contract. factorfunding.com

*Fundbox – Our pick for the best factoring service for very small businesses, Fundbox has an easy application process, transparent pricing, small business-friendly repayment terms and top-rated customer support. It's easy to qualify for Fundbox, making it a great choice for very small businesses that may not meet most factoring services' revenue and operational requirements. Read our full review here. fundbox.com

Interstate Capital – Interstate Capital offers same-day funding, 24/7 automatic credit approvals and rates starting at 0.49 percent per invoice. The company provides factoring services for a variety of industries, including trucking and freight services, manufacturing and distribution, and staffing. There's no application fee, and customers can apply online. interstatecapital.com

Gateway Commercial Finance – Offering both recourse and nonrecourse factoring services, Gateway Commercial Finance works with businesses in many industries, such as construction, farming, manufacturing and services, including businesses with government contracts. Once your application is approved, initial funding takes up to three days, with subsequent funding provided within 24 hours. There are no invoice minimums or minimum balance requirements. gatewaycfs.com

Harper Partners – Harper Partners provides factoring services to businesses that plan to factor $5,000 or more of invoices per month. It works with many different business types in the U.S. and Canada, including those in media and advertising, B2B software, business services, and hardware technology. Its rates range from 1 to 3 percent per month, and it advances 70 to 90 percent of invoice amounts. joinharper.com

New Century Financial – New Century Financial charges no application or startup fees, has no long-term contracts or termination fees, and lets you choose which invoices you want funded. You can apply online to be approved within 24 hours. The company advances up to 90 percent of invoice amounts, based on the credit of your customers. newcenturyfinancial.com

Paragon Financial Group – Paragon Financial Group provides factoring services for fast-growing businesses in many different industries, including construction supply, manufacturing, distributing and staffing. It offers 80 to 90 percent cash advancement, depending on your industry, and can approve your application in 24 hours. The company also offers credit protection, payroll funding and more. paragonfinancial.net

Porter Capital Corporation – Porter Capital offers accounts receivables factoring and inventory financing to many business types, including staffing, manufacturing and distributing, and oil field services. Its sister company, Porter Billing Services, provides factoring services to the transportation industry, with both recourse and nonrecourse factoring options. portercap.net, porterbillingservices.com

Riviera Finance – Riviera Finance has been financing small businesses, including startups, since 1969 and has more than 20 regional offices in the U.S. and Canada. It offers 24-hour funding and a standard cash advance of 92 percent of invoices. Using its online account management system, you can check the status of your accounts and submit invoices for payment 24/7. rivierafinance.com

RMP Capital Corp. – RMP Capital Corp. has different factoring services tailored to specific businesses, including public works contractors, service providers, trucking companies, small businesses and other factoring companies. It offers advances up to 90 percent of invoice amounts and works with both new and established companies, as well as those with poor credit. rmpcapital.com

RTS Financial – RTS Financial provides factoring services for businesses in many industries, including trucking and transportation, oil field services, and textile and apparel. It offers funding within 24 hours and advances up to 97 percent of invoice amounts. rtsfinancial.com

TCI Business Capital – TCI Business Capital offers invoice factoring, accounts-receivable financing, lines of credit, and business loans to small and midsize companies in the U.S. and Canada. It works with businesses in many industries, such as technology, renewable energy, trucking and freight, staffing, oil field services, and government contractors. Its invoice factoring lines are between $50,000 and $20,000,000. It can approve most factoring applications in 30 minutes or less, and once your account is set up, you can get invoice advances within 24 hours. tcicapital.com

Universal Funding Corporation – Universal Funding provides factoring services to businesses in many industries, including manufacturing, wholesale and distributing, oil and gas, and trucking. It has no startup or application fees, though it charges for credit approvals and has a lockbox fee. Its rates range from 0.55 to 2 percent for the first 30 days, and it advances 95 percent of invoice amounts. Approval can take as little as two business days. universalfunding.com

USA Factoring – USA Factoring offers recourse and nonrecourse factoring services for many industries, including agriculture, construction, trucking and health care. Its rates start at 0.59 percent, and it advances up to 97 percent of invoice amounts. It doesn't charge an application fee, and once your account is established, it can provide funding within 24 hours. usafactoring.com

Ready to choose a factoring service? Here's a breakdown of our complete coverage:
Factoring: What It Is and How to Choose a Service
Best Factoring Services for Small Businesses
American Receivable Review: Best Factoring Service for Small Businesses
Fundbox Review: Best Factoring Service for Very Small Businesses
BlueVine Review: Best B2B Factoring Service

Are you a factoring company that would like to be added to this list and possibly considered for our next round of reviews? Please feel free to contact Lori Fairbanks at lfairbanks@purch.com.

Additional reporting by Sara Angeles, Shannon Gausepohl and Adam C. Uzialko.

Editor's Note: Looking for information on factoring services? Use the questionnaire below and our vendor partners will contact you to provide you with the information you need:

How much in new accounts receivable do you want to factor every month?

$5,000-9,999

$10,000-29,999

$30,000-49,999

$50,000-99,999

$100,000-499,999

$500,000+

NEXT ▷

Lori Fairbanks
Lori Fairbanks has years of experience writing and editing for both print and online publications. After graduating from Brigham Young University with a Bachelor of Arts in English, she worked as an editor for Creating Keepsakes magazine and then as a freelance writer and editor for a variety of companies, including marketing firms and a medical university. She joined Purch in 2014 as a senior writer for Top Ten Reviews and now writes for Business.com and Business News Daily.

Thank You So much -Businessme2018