Can you sell unpaid invoices to a collection agency? What debt buyers actually pay

Yes, you can sell unpaid invoices, but a collection agency is usually not the buyer and the price is worse than almost every owner expects. Agencies work on contingency: they keep a percentage of what they recover and you keep the rest. Debt buyers are a separate business that purchases receivables outright at a deep discount. The FTC's study of the debt buying industry found buyers paid an average of about 4 cents per dollar of face value. Selling turns a $10,000 receivable into a few hundred dollars and ends your claim permanently.

The confusion is understandable, because three completely different transactions get described with the same words: placing an invoice with an agency, selling the debt to a buyer, and factoring. They have different prices, different risk, and different consequences for the customer relationship. Here is what each one actually costs.

How much does a collection agency buy debt for?

Most collection agencies do not buy debt at all. They take a placement and work it on contingency, keeping a percentage of anything they recover. The Kaplan Group, a commercial agency that publishes its rate card, charges 50% on claims under $1,000, 25% from $1,000 to $4,999, 20% from $5,000 to $49,999, 15% from $50,000 to $499,999, and 10% above $500,000. That is the shape of the market: the smaller and older the claim, the higher the percentage.

When debt is genuinely bought, the buyer is a debt buyer, and the pricing is on a different scale entirely. The FTC's 2013 study, which is still the most detailed primary source on the subject, examined more than 5,000 portfolios containing nearly 90 million consumer accounts with a combined face value of $143 billion. Buyers paid roughly 4 cents on the dollar on average, 7.9 cents for debt under three years old and 2.2 cents for debt six to fifteen years old. Industry sources commonly quote 5% to 20% of face value for cleaner commercial paper sold in bulk, but that is a portfolio price, not a price anyone will quote you for one invoice.

Which leads to the part that catches small businesses out. Debt buyers purchase portfolios, not individual accounts. If you have one $9,000 invoice from one non-paying customer, there is essentially no buyer for it at any price. The market you have read about exists for banks and telecoms selling ten thousand accounts at a time.

Collection agency versus debt buyer: they are not the same business

The distinction matters because it decides who owns the debt afterwards.

When you place an invoice with an agency, you still own it. The agency acts on your behalf, you remain the creditor, and if they recover nothing you have lost nothing but time. Recovery rates on placed commercial claims are meaningfully better than a sale price: you typically end up with 60% to 75% of the balance on the accounts that do pay, after the contingency fee.

When you sell to a debt buyer, ownership transfers by assignment. The buyer can pursue, settle, resell, or sue on the account, and you have no further say in how your former customer is treated. You also cannot change your mind if the customer turns up next quarter wanting to buy again. That loss of control is the real cost, and it is not on any rate card.

Is invoice factoring the same as selling unpaid invoices?

No, and this is where most of the confused searching happens. Factoring is the sale of current invoices, not delinquent ones. A factor advances you 70% to 95% of the face value of an invoice that is not yet overdue, from a customer with decent credit, and charges a discount fee of roughly 1% to 5% per month outstanding, with most US small businesses paying 1.5% to 3.5%. When the customer pays, you get the reserve back minus the fee.

Factors are buying a short wait, not a bad debt. They underwrite your customer's creditworthiness, not yours, and an invoice that is already 120 days past due from a customer who has stopped answering the phone is exactly what they screen out. If you have gone looking for a factor to take your delinquent receivables and been declined, that is why. Factoring is a cash flow tool for businesses whose customers pay slowly but do pay. It is not an exit for bad paper.

Do companies buy unpaid B2B invoices?

Some do, in volume. The market for individual small business invoices is thin to nonexistent, and the operators who advertise to owners in that position are usually brokers who will place the account with an agency on contingency rather than write you a check. There is nothing wrong with that, but you should know which transaction you are actually entering.

Before you go looking, run the arithmetic on your own file. A $12,000 invoice that is 100 days past due, from a customer who is still trading and has never disputed the work, is worth far more worked than sold. Even at a 25% contingency you net $9,000 if it pays. Sold in a portfolio at 10 cents you net $1,200, and at the 4 cent average from the FTC data you net $480. The gap is not close enough to make selling a reasonable first move on anything collectible.

What you give up when you sell an invoice

Three things, all of them permanent.

You give up the money, obviously, at a discount steep enough that it only ever makes sense on debt you have already given up on. You give up control of the customer relationship: the buyer's collection style becomes your former customer's experience of your company, and in a small market or a tight industry that gets noticed. And you give up your own record. Once assigned, the account leaves your books, which complicates the tax treatment if you were planning to claim a bad debt deduction on the same amount.

Owners sometimes clear aged receivables off the books before selling the business, on the theory that a clean balance sheet reads better to a buyer. It rarely helps. Any serious business valuation discounts aged receivables to something near their real collectibility regardless, so selling them at 5 cents to make the aging report look tidy simply converts a discounted asset into a smaller amount of cash.

When selling an unpaid invoice actually makes sense

There is a narrow case. If the debt is old enough that the statute of limitations is close to expiring, the debtor has stopped responding to everything including a formal demand, and you have already decided not to sue, then the paper genuinely is worth close to nothing to you and converting it to a few cents is better than zero. The same logic applies if you are winding down and want the accounts off the books before you close.

Everything short of that is a case for working the invoice. Invoices worked while they are still under 90 days past due commonly recover 70% or more. Past 180 days that figure often drops below 15%. The moment to act is the moment the recovery curve is still in your favor, which is weeks after the due date, not months.

What to do instead, in order

Work your own invoices first, on a schedule rather than on mood. A first contact around day 3, a direct request at day 15, a firm notice naming your contractual late fee at day 30, and a formal demand at day 60 recovers most of what is recoverable, and it costs you nothing beyond the effort of being consistent. This is the whole argument for unpaid invoice collection software: not that it writes better emails than you would, but that it actually sends them on day 3 when you are busy doing the work that generated the invoice.

Place with an agency second, and only on accounts you have genuinely exhausted. At that point you are paying 25% to 50% of something instead of collecting 100% of nothing, which is a fair trade on a dead account and a terrible one on a live account you simply never chased. Our breakdown of how much collection agencies charge covers the rate cards and the minimum balance requirements that make small invoices uneconomic to place at all.

Sue third, if the balance justifies it and the debtor has assets. Sell last, if at all.

Selling versus writing off: the tax angle

Writing off a bad debt and selling it are different events, and the deduction rules surprise people. Under IRS Topic 453, a debt becomes worthless when the surrounding facts and circumstances indicate there is no reasonable expectation of repayment, and the deduction is available only in the year it becomes worthless. Critically, you can only deduct a bad debt if you previously included the amount in income or loaned out cash.

That means a cash method business generally cannot deduct an unpaid invoice at all. You never recorded the income, so there is nothing to write off. The IRS uses this exact example: the architect on the cash method whose client never pays gets no bad debt deduction. Accrual method businesses did record the income and can deduct the worthless amount, in full or in part, because business bad debts can be partially worthless and still deductible. Business bad debts go on Schedule C for a sole proprietor.

One correction worth carrying: nearly every article on this subject still cites Publication 535. It was discontinued after 2022, and the guidance now lives in Publication 334 for small business and Publication 550 for nonbusiness bad debts. If you keep your books in QuickBooks, the mechanics of recording the write off are in our guide to how to write off bad debt in QuickBooks. Talk to your accountant about your own facts; this is general information, not tax advice.

The short version

Collection agencies rent you their leverage for a percentage. Debt buyers buy your claim for pennies and take it away from you forever. Factors buy time on invoices that are not yet a problem. Only one of those three is a serious option for a live receivable, and it is the one you use after your own follow up has genuinely failed. If your invoices are reaching 90 days past due before anything happens to them, the fix is not finding a better buyer. It is moving the first contact forward by 80 days.