When using Invoice Finance many businesses choose to add bad debt protection to their facility. Bad debt protection essentially protects your business against non payment from insolvent customers and depending on the policy, protracted default. Protracted default covers you if your customer does not pay after a certain amount of time. It is important to check your policy to see what you are covered for as each lenders bad debt protection policy can vary.
Many Invoice Finance providers partner with their own credit insurer but it’s not uncommon for a business to use a separate policy if you already have suitable limits in place. By including bad debt protection in your invoice finance policy, you can benefit from:
no monthly fixed premiums it is based on a % fee of turnover which makes it much more flexible if your turnover goes up and down.
the invoice finance provider will support you with the reporting. Bad debt protection facilities often require reporting on late or overdue payments.
When entering into an invoice finance agreement a funder will normally advance against customers who they deem to be creditworthy. This is a beneficial tool as it can give you peace of mind when offering your customers credit terms, but it is important to be aware that you will not be protected if they fail, unless you have taken out bad debt protection or agreed a non-recourse facility.
What are the benefits of Bad Debt Protection?
Up to a 100% protection against approved customers
Will save you time and money in the event of an insolvency
Peace of mind knowing you will be covered in the event of insolvency or non payment (depending on the policy)
Some funders allow you to selective on who you cover. In some cases, you may see no benefit in paying a premium against blue chip customers who you think are extremely unlikely to fail
Funders may advance greater sums against protected customers
Depending on how many customers you have and the nature of your customers some funders will only provide an invoice factoring or invoice discounting facility with bad debt protection included. If you have a well spread ledger with several different customers, it is unlikely for this to be essential, but you still may see the benefit. If a large customer did fail, what impact would this have on your business?
When comparing invoice finance facilities, it is important to understand what each quote offers and what differs between them. Bad debt protection does come at a cost and some lenders will automatically include this in their service fee. If you are unsure on how to compare your offers or become confused with the terminology, Compare Factoring are happy to offer a free review for all businesses who are seeking a funding facility.
If you would like more information on factoring, discounting or bad debt protection feel free to give us a call on 01322 741 425 or email us at firstname.lastname@example.org.
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Invoice Finance is a perfect way to help your business manage cashflow and to remove the headache of late payers. There are a number of ways that an invoice finance facility can be structured and it can be tailored to your preferences.
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