Sometimes when you have a company the focus on selling your products is so great that you might inadvertently neglect the importance of getting properly paid. And if you’re not, your cash flow, and your business as a whole, will suffer.
This can happen due to several reasons, such as administrative dysfunctions or disagreements on invoices. But don’t panic. We are here for you, and we compiled a list of four preventive actions you can take to protect your business against faulty payments.
1. Documentary credit:
The buyer agrees to place the amount due from the seller’s invoice into a known and independent bank. If the seller provides all required certificates at the end of the transaction, the bank may allow the seller to retrieve its money.
This very simple transaction may be costly depending on the levels and guarantees that both sellers and buyers set up with the bank. Documentary credits are usually employed in export-import transactions or among newly assembled business partners.
2. Trade credit insurance:
It’s an insurance policy offered by private insurance companies or government agencies covering buyers’ defaults, insolvency and bankruptcy. Sellers need to apply before alleged defaults occur.
Depending on the desired coverage some sellers may recover partly (up to 80% of the sale) and/or after 6 months the buyers’ insolvency is declared. Whoever subscribes trade credit insurance may be liable to pay an annual fee which varies depending on the risks covered and/or the countries screened.
Has become a common practice in recent years. It consists in a financial transaction whereby a business sells its accounts receivable (i.e. invoices) by unpaid buyers to a third party (usually a major bank) at a consistent discount.
The factor provides financing to the seller of the accounts in the form of “advance”, often 70-85% of the purchase price of the accounts. The financial institution will then concentrate its efforts in retrieving all unpaid balances from the original buyer.
4. The law:
Shall any of the previous techniques discourage you, you may also find a legal alternative for retrieving your unpaid invoices.
Don’t be afraid to claim your rights. If you are confused as to which preventive action is better for your business, send us an e-mail at firstname.lastname@example.org