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Bad Debt Protection in Invoice Factoring

Author: Stephen Perl
by Stephen Perl
Posted: Mar 31, 2016

Amongst other benefits of invoice factoring or accounts receivable factoring, one of the important services, which a factor provides, is bad debt protection to the business. For any business, especially a small ormid sized one, this service can like music to their ears. Bad debt can impact or put a business under… protection from the same through finance can be a relief to a business owner and mitigate large concentrations or foreign sales risk.

What’s bad debt protection? This is the protection against a customer filing BK or just not being able to pay due to financial distress. Some factors provide an invoice credit protection service that can be availed along with their invoice factoring services where they take on complete responsibility of recovering payment from your creditor. Hence, in case the customer cannot settle its liability, the factor bears the loss, instead of passing it to you. This is also known as ‘non-recourse factoring’. The price of the service depends on the factor, the creditworthiness of the customer and the credit history.

Even though we do not like to imagine a situation where, for whatever reasons, your customer fails to pay his dues. If you do not have Bad Debt Protection services availed, you would have to repay the funds to the factor, against their outstanding invoices. For well-established businesses, this might be a simple cash of rotation of money. However, for smaller businesses, this seemingly minor crisis can result in a major disturbance of the cash flow of the company.

There might be instances where your creditor faces the problem of insolvency, and in such a case, it becomes a struggle to handle the procedure for the full and final settlement of your money. When you avail bad debt protection services from a factoring company, it will manage the insolvency procedure on your behalf. The factor liaises with the insolvency practitioner, gets the documentation in place and follows through with the entire process.

It is always wise to leave whatever job you can to the experts. Most factoring companies have an expert Credit Management Team, which can access the credit worthiness of the customer and potential risk exposure to your business, and hence, minimizing the probability of bad debt in your business. Thus, not only do you end up saving your time and money, but also can avail the services of an expert Credit Management Team, which will take care of your debts and recovery.

Moreover, this service acts like sales insurance for your business. It allows you an edge over the competitors, wherein you can expand and grow your business without the worry of recovering payments from customers that decide to file BK. It’s a sure win-win!

About the Author

In 1985, 1st PMF Bancorp was founded as a family run lender providing factoring, but as our clients’ businesses expanded globally.

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Author: Stephen Perl

Stephen Perl

Member since: May 18, 2015
Published articles: 9

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