How do you choose between recourse and non-recourse invoice discounting?

1 What is recourse invoice discounting?

Recourse invoice discounting means that you are responsible for collecting the payments from your customers, and for covering any bad debts or defaults. If your customers fail to pay, the invoice discounting provider can ask you to repay the advance, plus interest and fees. Recourse invoice discounting is usually cheaper and easier to access than non-recourse invoice discounting, but it also exposes you to more risk.

2 What is non-recourse invoice discounting?

Non-recourse invoice discounting means that the invoice discounting provider takes on the risk of non-payment from your customers, and does not ask you to repay the advance if they default. In exchange, they charge you a higher fee and may impose stricter criteria for your invoices and customers. Non-recourse invoice discounting can protect you from bad debts and improve your credit rating, but it also reduces your profit margin and limits your flexibility.

3 How to compare the costs and benefits?

To choose between recourse and non-recourse invoice discounting, you need to compare the costs and benefits of each option. The costs include the interest rate, the fees, and the hidden charges that the invoice discounting provider may apply. The benefits include the amount of cash you can access, the speed of funding, and the level of control you have over your invoices and customers. You also need to consider your cash flow needs, your risk appetite, and your customer profile.

4 How to find the best invoice discounting provider?

Finding the best invoice discounting provider for your business depends on your specific requirements and preferences. You should look for a provider that offers competitive rates, transparent terms, flexible contracts, and reliable service. You should also check their reputation, reviews, and references, and ask for a free quote and a trial period. You may want to compare different providers and negotiate the best deal for your business.

5 How to prepare for invoice discounting?

Before applying for invoice discounting, you should prepare your business and your invoices for the process. You should ensure that your invoices are accurate, complete, and verifiable, and that they meet the criteria of the invoice discounting provider. You should also review your credit history, your financial statements, and your cash flow projections, and address any issues that may affect your eligibility or your rates. You should also communicate with your customers and inform them of the invoice discounting arrangement.

6 How to manage invoice discounting effectively?

Once you have secured invoice discounting, you should manage it effectively to maximize its benefits and minimize its risks. You should monitor your cash flow, your invoices, and your customers regularly, and report any changes or problems to the invoice discounting provider. You should also maintain a good relationship with the provider and your customers, and comply with the terms and conditions of the contract. You should also review your invoice discounting performance periodically and adjust it as needed.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?