Debt Recovery vs Invoice Factoring
Factoring sells your invoice for cash now. Debt recovery chases the invoice for full payment. Which makes sense depends on the debt, the debtor, and your cash flow situation.
What is invoice factoring?
Invoice factoring (also called accounts receivable financing) involves selling your unpaid invoices to a finance company — the 'factor' — at a discount. You typically receive 70–90% of the face value upfront, and the factor then collects from your customer. It is a cash flow tool, not a collection tool. Factoring is best suited to current, undisputed invoices where the debtor is creditworthy — the factor is taking on collection risk, so they price accordingly.
What is debt recovery?
Debt recovery (or debt collection) is the process of chasing unpaid invoices through direct contact — letters, phone calls, emails, and negotiation. A professional agency takes a commission on what is actually recovered, with no upfront cost. The goal is full payment, or as close to it as possible. Recovery agencies are designed for overdue accounts — invoices that are past due and have not responded to the creditor's own chasing.
Key differences
| Invoice factoring | Debt recovery | |
|---|---|---|
| Cost | 2–5% discount plus fees | 10–25% commission on recovered amount; $0 if nothing recovered |
| Speed | Cash in days | 14–90 days for resolution |
| Amount received | 70–90% of invoice value | 75–90% after commission if successful |
| Who collects | The factor | The agency |
| Best for | Cash flow gaps, ongoing facility | Specific overdue accounts, one-off debts |
When factoring makes sense
- Your business has predictable invoices with reliable debtors.
- You need regular cash flow support, not one-off collection.
- You don't mind customers knowing you use a factor.
- The invoices are current — not yet significantly overdue.
- You want an ongoing facility, not a case-by-case arrangement.
When debt recovery makes sense
- You have specific overdue accounts — 30 or more days past due.
- You cannot or do not want to sell the debt at a discount.
- The debtor has the capacity to pay — they just aren't.
- You want to recover the full amount, not a discounted portion.
- The account is too old or too disputed to factor.
- You have a one-off problem account rather than a systemic cash flow issue.
Can you use both?
Yes. Some businesses use factoring for current invoices and a recovery agency for accounts that slip through and become overdue. These are complementary tools serving different stages of the accounts receivable lifecycle. You cannot typically factor an invoice that is already significantly overdue — factors require current, undisputed invoices from creditworthy debtors. A recovery agency, by contrast, is specifically designed for the accounts that have gone wrong.
Frequently asked questions
Is invoice factoring the same as debt selling?
No. Factoring is selling current invoices for cash flow purposes — the invoice is usually current and undisputed. Debt purchase (or debt selling) involves selling overdue or problem accounts at a significant discount, typically for accounts that have failed other collection methods. Merion offers debt purchase for selected portfolios.
What percentage does factoring take?
Factors typically advance 70–90% of the invoice value upfront and charge a fee (usually 1–4% of invoice value) for the service. The exact terms depend on the debtor's creditworthiness and the volume of invoices.
What's the recovery rate for debt collection agencies?
Industry-wide recovery rates vary depending on the age and quality of accounts. Fresh accounts (under 90 days overdue) have significantly higher recovery rates than older debts. Most professional agencies achieve 40–70% recovery rates on referred accounts — but you only pay commission on what is actually collected.
Ready to recover your debts?
Refer an account today. No upfront fee, no lock-in — commission only if we recover.