Solutions to improve cash flow: comparison between credit insurance, factoring and debt collection companies
Given the persistent pressure on margins and cash flow, customer account management remains one of the top priorities for Finance Departments.
Cash flow determines a company’s ability to invest, meet its commitments, cope with unforeseen events or simply survive.
Yet, a significant portion of cash is tied up in receivables. According to the AFDCC, €1 in every four of revenue is on average awaiting collection. And the longer the delays, the greater the risk of non-payment.
Faced with this, three major solutions exist to help Financial Directors protect their cash flow and secure their customer accounts:
- Debt collection through a specialist company
- Factoring,
- Credit insurance.
But what issues does each address? How can you choose the right one for your needs? Here’s a clear overview to help you effectively protect your cash flow.
Credit insurance: controlling customer risk upstream
Credit insurance remains a popular solution for many businesses due to its ability to secure revenue. In the event of customer default, it provides partial compensation while also offering an upfront risk analysis service.
The advantages
- Protection against the risk of non-payment: it helps limit losses linked to unpaid bills, particularly for strategic customers or export markets.
- Decision support: Insurers provide information on customer solvency and assign credit limits, which helps manage outstanding amounts more wisely.
But despite these advantages, credit insurance is neither flexible nor comprehensive, and is not suitable for all businesses.
Things to anticipate before taking out credit insurance
- High cost: The overall cost can be significant, including annual premiums, administration fees, and sometimes a co-payment in the event of a claim. For companies with low claims, this can be an unprofitable expense.
- Coverage is sometimes partial: not all clients are insurable, or may be insurable for amounts lower than their actual outstanding balance. This forces the CFO to bear part of the risk despite the subscription.
- Complex claims procedures: The process of obtaining compensation can be cumbersome and time-consuming. It is necessary to prove that all recovery steps have been followed, and compensation is often only partial (usually between 70% and 90% of the amount).
- Rigidity in commercial management: the need to follow the insurer’s strict rules can hamper commercial responsiveness (particularly when granting an outstanding amount to a new customer who is not yet guaranteed), and constrain teams in their daily management.
In short, credit insurance is useful for preventing risks and securing sensitive sales, but it does not replace a rigorous credit policy or a responsive recovery strategy . It must be complementary, not exclusive, in a comprehensive approach to managing receivables.
Factoring: getting cash in advance of your customer invoices
Factoring involves assigning your receivables to a financial institution (the factor), which in exchange provides you with a rapid cash advance, for a fee. This solution is particularly attractive during periods of tight working capital requirements or in the event of strong growth.
The advantages
- Immediate access to liquidity: funds are disbursed quickly (usually within 24 to 48 hours), which improves cash visibility and relieves working capital.
- Customer risk coverage (optional): in the case of “non-recourse” factoring, the factor assumes the risk of non-payment, which can secure certain sales.
But behind this promise of immediate financial comfort, several structural limitations deserve to be highlighted, particularly for SMEs.
What you absolutely must anticipate before entrusting your portfolio to a factor
- High overall cost: Factoring combines several types of fees (factoring commission, discount, management, and additional fees), which significantly impact margins. Over a year, this can represent several points of lost profitability, even if used only partially.
- Loss of control over customer relations: In the context of notified or semi-notified factoring, the factor is directly involved in managing customer accounts. This can lead to misunderstandings or tensions with your customers, or even damage the business relationship.
- Administrative and contractual burden: factoring contracts are often complex, with restrictive clauses, volume commitments, regular portfolio reviews, and transfer conditions that exclude certain customers or invoices (disputes, delays, specific typologies).
- A dependency effect: in the long term, some companies become dependent on the cash provided by the factor, losing management autonomy and the ability to negotiate with other financiers.
- Factoring does not protect against non-payment, except in the case of a contract with a guarantee: to be protected against non-payment, you must operate with a non-recourse factoring contract, which is often more expensive and more restrictive in terms of management.
In summary, factoring can be a good one-off short-term financing tool, but it must be used wisely. For companies looking to maintain control over their receivables, manage costs, and preserve business relationships, there are more flexible solutions—including customized outsourced debt collection, which allows you to address actual delays without assigning your debt or customer relationship.
The Debt Collection Company: a direct lever to protect your cash flow and relieve your teams
Using a debt collection agency allows you to efficiently process overdue invoices, whether recent or old. Unlike factoring or credit insurance, this solution does not impose any volume commitment or comprehensive coverage: you remain in control of the scope entrusted to you (one-off, continuous, or only for certain customers or types of receivables).
Outsourced debt collection ensures flexibility and performance for CFOs and Credit Managers
You can outsource all or part of your receivables management depending on your internal needs, seasonality, or the criticality of your files. This flexibility is a real strategic advantage, particularly in the context of agile cash flow management.
In addition, it is a cost-effective solution.
Indeed, unlike factoring (recurring cost on the entire transferred turnover) or credit insurance (annual premium + cost of possible non-coverage), recovery is generally billed on a success basis. You only pay for the intervention in the event of a result. This makes it an economically relevant solution, particularly for SMEs or companies with a targeted but impactful default rate.
Finally, outsourced recovery is a real lever for HR performance
Beyond the financial benefits, the use of outsourced debt collection has a very positive HR impact:
- Immediate operational relief: Accounts receivable teams no longer have to follow up on or manage complex cases or time-consuming disputes. This allows them to focus on higher-value tasks (collection, auditing, cash flow forecasting).
- Reduced pressure and stress: outsourcing part of the customer service department improves the working environment by preventing internal teams from being caught between cash flow targets and managing tense customer relationships.
- No training required: the debt collection company’s experts take over while respecting your processes, your image and your contractual commitments.
In summary, a professional debt collection company acts not only as a cash flow accelerator, but also as a strategic HR partner for companies wishing to reconcile performance, control and relational quality.
At GESTION CREDIT EXPERT, for example, we assure our clients
- Legal and relational expertise that increases the chances of recovering their money without litigation,
- A friendly, humanized approach , respectful of their image and customer relations,
- The possibility of acting quickly , from the first day of delay or on old debts,
- Complete freedom in the selection of receivables to be outsourced, unlike credit insurance or factoring which often require global and supervised management.
We act as a true trusted partner of CFOs and Credit managers to secure their collections, reduce DSO , and recover cash without damaging commercial relationships.
How to choose the right solution to protect your cash flow?
Each option has advantages and limitations, and the choice between a debt collection agency, credit insurance or a factor will depend on:
- The level of customer risk and their tolerance for this (history of unpaid debts, solvency, concentration, etc.),
- Whether or not there is an immediate need for cash,
- Internal resources available to manage customer accounts.
Often, these 3 solutions are complementary
A wise CFO can, for example, insure its strategic clients, factor part of its turnover, and outsource the recovery of overdue debts.
In conclusion:
- Credit insurance secures future sales,
- Factoring provides occasional relief to cash flow,
- Recovery acts concretely on cash tied up in late payments.
For a balanced receivables management strategy, these solutions can be complementary, but outsourced debt collection offers a direct, flexible and cost-effective lever to accelerate cash flow without loss of control.