What Is a Data Factoring Account?

Data factoring is a way for companies to clear their books of unpaid debts.

Data factoring, or debt factoring, is not a term frequently heard by consumers. This term shows up on some credit reports as a "factoring company" account. Data factoring in financial services means a creditor company sold off invoices in good standing as a way to improve the company's cash flow and eliminate dealing with debt collection.

Benefits

The benefit to the original company, or debt holder, is that the company's accounts look better because they are rid of the weight of the debts they are owed. The company also frees itself of employing people to work on collecting debts owed.

Warning

Companies that sell their debts to a data factoring company do not receive the full amount for those debts. The company sells them for a percentage of what the consumer owes so it is important to evaluate whether the loss of income from the debts makes up for the expenditures of fully collecting those debts.

Potential

Consumers should know that debt factoring companies are not collection agencies. They will contact the consumer for debt repayment, but they cannot cause credit report damage. Data factoring can be done legally only with debts in good standing with the original company.

References

• BusinessDictionary.com: Definition of Debt Factoring
• DebtFactoring.org
• DebtFactoring.org: Advantages of Debt Factoring