Benefits of Insuring Invoices versus Factoring
Factoring, the selling of your unpaid invoices to a factoring company for collection, is a short term financing option for companies in urgent need of cash flow. For a fee of up to 10% of the invoice value, you can get cash in the bank, pay your employees salaries and continue to operate your business. But factoring has unintended consequences and can place your most important customer relationships at risk. Moreover if the invoice you want to factor is to a company overseas you will likely find that a factoring company won’t be able to help you.
Recourse and Non-Recourse Factoring
First of all, factoring does not mean you are out of debt. Most factoring companies agree to buy your invoice with "recourse", meaning if your customer does not pay the factoring company then your business is still on the hook for that invoice. "Non-recourse" factoring is an alternative option but is often more expensive because the factoring company cannot recover an unpaid invoice from your business. Usually you don’t get to choose which invoices to factor either.
Your Customer Relationship
If you factor your invoice, the factoring company will contact your customer to inform them that they now own your invoice and to pay them directly. This will happen before the due date and continue if your customer is late on their payment. You, the business owner, have little or no control over this process. The factoring company's goal is to collect the payment as close to the due date and does not take into account this customer’s importance to your business. Remember: if you factor your invoice, you also risk your business relationship with your customer.
How Credable® can help
If the risks associated with factoring are not worth the short term benefits to your business, insuring your invoices is a cost effective alternative that doesn't involve your customer directly. Pricing starts as low as 0.3% and you still invoice your customer directly as if nothing has changed. If your customer is late paying their invoice or goes bankrupt you can make a claim with Credable®, and only then will we contact your customer about repayment.
See how it works
It’s free to sign up, lookup your customer’s credit rating and get a quote for insuring your invoices. Try Credable® today!