Risk of Nonpayment
Have you considered invoice advances as a preventive measure against the risk of non-payment?
In times of inflation and economic crisis, late payments increase and become a threat to businesses and the self-employed.
Typically, late payments lead to business closures and bankruptcy. When liquidity and cash flow dry up, survival becomes impossible.
That’s why you must be prudent and take preventive measures from the very beginning.
In this article, we’ll recommend alternative financing options to prevent this problem.
Invoice advance payments and promissory note discounting are two concepts you should familiarize yourself with as soon as possible.
Why?
Let’s explain it with an example:
Imagine you land a new client who commissions a very important service valued at several thousand euros. To carry it out, you purchase materials and contract various services from your suppliers. As a result, you incur payment obligations with specific due dates.
At the same time, you’ve agreed on a payment plan with your new client, and since you’re dedicating a significant portion of your resources (staff, equipment, time, etc.) to fulfilling that order, you temporarily put other projects on hold.
At some point, your client’s payments begin to fall through.
Since you haven’t taken advantage of promissory note discounting or invoice advances, your finances are teetering. Suppliers are demanding payment, employees are asking for their paychecks, and your revenue is below expectations.
Unless you have substantial savings, the problem requires you to secure financing. However, in the current economic climate, banks typically deny financing if creditworthiness isn’t guaranteed—and yours depends on a delinquent client.
In the best-case scenario, you manage to secure that financing in exchange for exorbitant interest rates. As a result, you lose a portion of the revenue you were counting on—revenue that you may have already allocated or committed to a specific purpose.
We suggest taking the following specific steps:
– Client selection. Don’t trust just anyone; check their financial history and gather all necessary information before accepting major projects. Sometimes, turning down a lucrative project is a wise decision.
– Advance payment policy. Request payment in advance whenever possible. You should cover, at the very least, the expenses incurred by the project as soon as possible. If you notice a delay in any of these payments, put the project on hold until you are paid.
– Alternative financing. This is the best option for avoiding bigger problems. Invoice advance payments and the discounting of promissory notes are very attractive options.
Both invoice advances for self-employed individuals and businesses and the discounting of promissory notes are alternative financing methods. Essentially, they involve reaching an agreement with an intermediary to have them pay those invoices or promissory notes before their due dates.
However, you must keep one fundamental aspect in mind when signing these agreements.
If you accept them without recourse, the other party assumes the risk of nonpayment.
In other words, once you’ve received the agreed-upon portion of the invoice in advance, you will no longer have any collection issues. If a default occurs, the financial institution will be the party harmed by the delinquent payer.
Thus, this “without recourse” arrangement for the discounting of promissory notes and invoice advances for self-employed individuals or businesses offers you significant protection, since
the risk of non-payment disappears for you!
However, the cost is higher than when you enter into these financing arrangements with recourse
Consequently, this type of alternative financing provides real protection against delinquent payments.
Through invoice advances for self-employed individuals or businesses and the discounting of all your promissory notes, you can access working capital without waiting for the due date.
Don’t you think it’s worth learning more about these options with no obligation?
At Workcapital, we’d be delighted to help you and work with you to build a customized financing solution tailored to your needs.
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