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Acting when clients default on factoring contracts

On Behalf of | May 30, 2024 | collections

Factoring services help companies in a variety of Industries meet their basic financial obligations. By leveraging outstanding invoices, it is theoretically possible to gain access to immediate capital for facility rent payments or vendor payments.

Companies that offer factoring services essentially purchase payable invoices for services or goods already rendered by the client company to a consumer. There is typically a fee associated with such services, as well as interest that may accrue on the amount of capital advanced by the factoring company.

Typically, organizations offering factoring services have very thorough contracts and protocols in place to prevent losses. Despite those efforts, clients may sometimes default on payments based on their outstanding invoices. How can companies recover the funds advanced to an organization that actively attempts to avoid financial responsibility later?

Review the contract and document violations

An examination of the factoring agreement is an important step for any enforcement or collection activity. In some cases, the client may have breached an arrangement in a manner that makes them responsible for additional fees. Other times, there are potentially terms in the contract that require alternative dispute resolution before litigation or other aggressive collection attempts.

After reviewing the contract to determine what is appropriate and feasible, the company can gather evidence of missed payments or invoice fraud. The client may have gone to those with outstanding invoices and requested direct payments as a way of bypassing the obligation to the factoring company. Proof of that type of misconduct can be beneficial during the collection process.

Explore different collection options

Depending on the type of company that required the factoring services, the organization’s current financial status and what assets it owns, there could be a variety of different collection options available to a frustrated business creditor. Litigation is often necessary for collecting from a debtor intent on avoiding fiscal responsibilities.

Having assistance when exploring different ways to collect on a debt and preparing to take the matter to court can increase the chances that a factoring company can hold a client accountable for accepting funds and then intentionally acting to avoid repaying the amount advanced previously. The right approach to complex and potentially recurring collection issues can help businesses limit the losses caused by client defaults.