Wednesday, October 14, 2009

Debt Purchasing

What is Debt Purchasing?

Debt purchasing is similar to credit factoring, the primary difference being that with credit factoring, ownership of incoming credit payments is sold to a third party while with debt purchasing, debt payments are sold. Debt purchasing can be helpful for cash flow, as businesses which cannot afford to wait for their clients’ debts to be paid can sell them in exchange for an upfront payment. The alternative to this measure is to use a debt collection agency to collect debts on the business’ behalf.

Debt Purchasing Alternatives

Debt collection can be an effective alternative to debt purchasing, and in some instances can be preferable. With debt purchasing, the risk involved means that buyers will pay less than the actual value of the debt – with debt collection, the full amount owed is collected, although the debt collection agency’s fee will need to be paid out of this money. A debt collection agency usually charges a commission of a fixed percentage on successful collection endeavors.