Factoring ...

[Digital Prophet]

I was discussing business generalities with a friend of mine that does corporate portraits in Michigan. And she mentioned to me that she was at a loss as to what to do about collecting from a dead beat client.

Well the topic of factoring came up. But she said that she didn't know of a factor that would take a account that was in the $1000 range. Has anyone had experience factoring? Is there a factor who might be able to take a account this small?

Any information would be usefull.

- Digital Prophet -

[IndyJeff]

DP she can take him to small claims court for the $1000. I am not sure what "factoring" is but I will assume it is like a collection agency. An agency might buy the bad note for 10-30 cents on the dollar and then get as much as they can or, they will take it on for a 50% commission and expenses. From what I knew about collection agencies, if they can they would rather go on the 50% commission and try to get you to settle quickly for 60-70 cents on the dollar. They get their money, you get a small protion of what you were owed but, it would be more than you could have gotten on your own.

Personally, I would tell your friend to look at small claims court. She files and they send the supeona to the dead beat. You both show up and plead your case. The judge reaches a decision and hands down a verdict. Now the only bad thing is, getting a judgement is the easy part....collecting it can be a whole different ball game.

[pradeep1]

Factoring is where you sell your receivable to another company for a set percentage. Depends on the client and their payment history/credit rating. Factoring rates can be 5-20% depending on industry/client. Factoring companies let you factor your receivables, but you have to have a relationship before you get in to trouble with a debtor. In other words, they won't take on dead-beat accounts for their usual commission. They may, as IndyJeff said, buy it from you at 30% face value, but I doubt that too, since the amount is so small.

I second the going to small claims court proposition. It would be faster, cheaper, and easier. You can usually sue for amount + interest + court costs, but cannot include the lawyer's fees etc., if you use one.

In my business, on the standard invoice, I state that I charge a simple interest of 1.75% monthly on all overdue accounts. That allows me to charge that interest in a court case. Your friend should just go down to the magistrate court office or clerk of court office and find out the details.