When an invoice a factor has purchased will not collect, three paths are left. Charge it back to the client if the agreement is recourse and the period is still open. Place it with a commercial collection agency or a collections attorney. Or stop active pursuit and take the loss. Each is a different cost, and the choice is usually made by whichever one requires the least effort that week.
Our collections guide names all three in half a sentence: at 90 days past due, “options narrow to intensive recovery, a collection agency, or write-off.” That page owns the dunning ladder that gets you to day 90. It deliberately stops there. This page picks the file up at that point and walks what each of the three branches actually involves.
One distinction first, because the two situations look alike and are not. If the debtor has failed, shut its doors, or lost its operating authority, that is a different workflow with a different instrument at the end of it, and we cover it in what a factor does when a broker debtor stops paying. This page is about the invoice that simply will not collect from a debtor who is still trading.
Before the file leaves collections
Nothing should move to a decision branch until four things are settled, and skipping them is how shops end up placing files that were never collectible in the first place.
The documentation has to be complete. Rate confirmation, signed bill of lading, proof of delivery, the invoice as sent, and the notice of assignment with proof the debtor received it. A file missing the delivery proof is not an uncollectible invoice. It is an unverified one, and nobody downstream can do anything with it.
The dispute has to be resolved or characterized. There is a large difference between a debtor who will not pay and a debtor who is refusing to pay for a stated reason you have not answered. If there is a deduction or a service claim in the file, the branch decision waits until somebody has read it and either conceded it or rejected it in writing. Our cash application guide covers the coding that makes those reasons readable in the first place.
The debtor’s status has to be current. Still trading, still holding authority, still answering the phone, or not. That answer changes which branch is even available.
And the recourse clock has to be checked. Under a recourse arrangement, the right to charge back is a contract term with a period attached, and it expires. A file that sits in collections past that window has quietly eliminated one of its own three options.
Branch one: the chargeback
A chargeback moves the loss from your book to the client’s. Mechanically it is the simplest branch and it is the one with the most relationship consequence.
Our pricing guide covers where a chargeback lands: under a recourse arrangement, an invoice the debtor ultimately does not pay gets charged back to the carrier client, and the reserve is where that chargeback hits first. When the reserve does not cover it, the balance nets against the next advance, which is the version the client actually feels. A carrier expecting a funding on Tuesday and receiving a materially smaller one is going to call, and what happens next depends entirely on whether they were told this was coming.
That is the operational point worth taking from this section. The chargeback itself is a system entry. The part that decides whether you keep the client is the notice before it: which invoices, why, what was attempted, and what the net effect on their next funding will be, sent before the funding rather than explained after it. A chargeback a client learns about from their bank balance costs you more than the invoice did.
Two practical notes. Charge back the specific invoices with their documentation attached, not a lump sum, because a client who cannot see which loads are involved cannot help you collect them and will assume the worst. And decide in advance whether a charged-back invoice stays in your collections queue. Sometimes it should, because you still hold the paper and the debtor relationship, and the client has no realistic way to collect from a broker that ignored you. That is a policy decision, not a case-by-case one.
Whether a particular chargeback provision is enforceable, and what your position is if the client disputes it, is a question for qualified factoring counsel. The mechanics are operational. The enforceability is not.
Branch two: placement
Placing a file means handing collection of it to somebody else, either a commercial collection agency or a collections attorney, usually on a contingency basis. It is the branch most factors understand least, so it is worth being concrete about what it involves.
A placement file is not an aging line. It is the same complete documentation set you assembled above, plus the collection history: every contact attempted, with dates, who was reached, what they said, and what was promised. An agency working a file with no history will repeat every call you already made, to the same people, and the debtor will treat the second round exactly as it treated the first. The quality of the placement is largely decided by the quality of the file you hand over.
Vetting the agency is the part nobody tells a first-time placer to do. Before you sign anything, ask how the agency handles funds it collects on your behalf, because money it recovers sits in its trust account before it reaches you, and that account being funded and independently reviewed is a different question from whether the agency is good at collecting. The Commercial Law League of America publishes standards for commercial collection agencies that are worth reading before you place a file; confirm directly with any agency you are considering how its trust accounting and bonding hold up against them.
Read what that question is actually protecting against. The agency’s collection skill and the safety of your money once it is in their hands are two different things. Ask about both before you place a file, not after.
Two more things to settle before you sign anything. Where the contingency rate sits and what triggers it, in writing, including what happens if the debtor pays you directly after placement, which happens more often than people expect. And whether the placement is exclusive for a period, because an agency working a file while your own collector also calls the debtor produces a debtor who has learned that nobody at your company knows what anybody else is doing.
Placement with an attorney, or any decision to sue, is a legal matter and belongs with counsel. Licensing requirements for commercial collection, what a demand may say, and the enforceability of any judgment are legal questions too. FRC advises on the operational workflow around placement, not on the law of collection.
Branch three: stopping pursuit
The third branch has two meanings that get used interchangeably and should not be.
Stopping active pursuit is an operational decision. It means the file comes off the collector’s working list, the calls stop, and the balance stops consuming a collector’s week. You still own the receivable, you still hold the documentation, and if the debtor resurfaces or a payment arrives, you are still entitled to it.
Writing off is an accounting event. When a balance is recognized as a loss, against which reserve, and how it is presented in your financial statements are questions for your CPA. FRC does not give accounting or tax advice and this page gives none. What we can say operationally is that the two decisions should be made by different people on different criteria, and that a shop which treats “stop calling” and “write it off” as the same act tends to do both later than it should.
The operational discipline here is small and worth having. Somebody has to be able to authorize a file off the working list, at a stated balance threshold, without an owner’s signature every time, or your collector will keep working a file whose remaining balance costs more in labor than it can return. And the decision has to be recorded with a reason, because a stack of abandoned files with no explanation is how a book’s loss history becomes unreadable to a lender or a buyer.
What each branch does to your numbers
The three branches do not land in the same place on the monthly report, and knowing which one is which is the difference between reading your book and guessing at it.
Our metrics guide defines the two numbers that move here. The bad-debt ratio measures losses against purchased volume, and reserve adequacy sits next to it. A charged-back invoice is a loss your client absorbed, which is a real event on the client relationship and a different thing from a loss your book absorbed. A written-off invoice is yours. If both land in the same bucket on your monthly pack, the number cannot tell you whether your underwriting is failing or your clients are carrying your credit decisions for you.
Keep them separable. Track chargebacks by client and by debtor, and track write-offs by debtor and by cause. Read together over a year, they answer a question a single loss percentage never will: is the problem a debtor you should have limited, a client whose freight is a permanent dispute machine, or a verification step that quietly loosened?
What this looks like from the client’s side
There is a second-order effect that shows up a quarter later and rarely gets connected back.
A client who has absorbed chargebacks starts shopping. Sometimes that is the correct outcome and the account was never priced for the freight it was bringing you. Sometimes it means an avoidable loss has cost you a good carrier because nobody explained it. Either way, the exit is a separate workflow and we cover it in what a factor does when a client leaves.
The honest operator point is that by the time a file reaches this page, every branch is a loss-minimizing choice. There is no good outcome at day 90. There is the cheapest available one, and the real work happened at underwriting and in the first sixty days of the aging.
Where this stops being operational
FRC works on process, and this topic has two boundaries rather than one.
Recognition of a loss, the allowance it lands against, presentation in your financial statements, and tax treatment are questions for your CPA. FRC is not an accounting firm and gives no accounting opinion. Our operations audit is an operational read of how the work runs and is not a financial-statement audit.
Suit, judgment, licensed-collection requirements, what a demand letter may contain, and the enforceability of any chargeback provision are legal questions for qualified counsel. Establish that relationship before you need it rather than during a placement.
Where an outside read fits
Most shops do not have a problem picking the right branch. They have a problem picking it on time, with a complete file, by somebody whose job it is.
What an outside read usually finds is that there is no written trigger for leaving collections, no documentation standard for a placement file, no vetting done on the agency currently holding files, and chargebacks and write-offs mixed into one line on the monthly pack. Each of those is a small fix. Together they are why a book’s loss history tells nobody anything.
Collections is one of the six domains in FRC’s 90-Day Operational Audit, alongside onboarding, risk, technology, staffing, and financial reporting, and this decision sits across collections and financial reporting both. The output is a written assessment and a prioritized 12-month roadmap, with no long-term commitment.
FRC’s founder, Renee Williams, built a freight factoring company from the ground up over 25+ years, leading credit and collections operations and designing the escalation the desk runs on. The operators we have worked with, MinWest Financial and MyFactor among them, came in understanding finance and not the operational realities of transportation factoring. We cannot tell you a given balance will be recovered. We can help you build the decision so it gets made deliberately and early. Call 800-648-5450 and Renee picks up directly.