Are you thinking of selling your invoices? Examine the terms carefully

Are you thinking of selling your invoices? Examine the terms carefully

Posted on 26.08.2019, 13:20

”No hidden fees”, ”We shoulder the entire credit risk”, ”No need of guaranty” – These advertising terms sound tempting, so we have scrutinized them and explain what they really mean.

To sign an agreement without thoroughly scrutinizing the fine print is unfortunately common, and often we blindly trust the words of the sales rep. In ourcontact with businesses in search of a provider that will help them sell their invoices ouradvice is as follows:

Don’t settle for the first that seem to fit your requirements, shop around, always compare suppliers, carefully examine the deal and never sign anything based on verbal agreements.

It may seem like a matter of course to trust the word of a sales rep, and in a perfect world we should be able to take for granted that they do not exclude anything vital. However unfortunately that is not the case and important paragraphs may be omitted. These paragraphs can be hard to detect on first glance if you don’t examine the agreement thoroughly and question all ambiguities. The main points to keep in mind when selling your invoices and comparing agreements follow below.

 

“No hidden fees”

Even though the phrase “Sell your invoices without any hidden fees” is commonly occurring, hidden fees are more prevalent than you may expect. It’s all down to a matter of definition and interpretation. Usually you are presented with the interest rate and eventual fees for administration, but to give you a better overview of these terms we have compared the terms of a well-knownmarket actor, with the terms we offer at LogiqPay in the example below.  The purpose of this is to be entirely transparent, and for clarity’s sake we have opted to only charge a fixed amount per invoice.

 

“Sell your invoices without guaranty”

A common misconception when actors claim to take the whole risk of credit,is that customers believe they do not need to stand as guarantors of the sales. When establishing who actually assumes the risk for an invoice purchase this point can often be opaque. Therefore,it’s important to pay attention to terms such as personal guarantee. This term means that the actor, despite the hint that suretyis not a requirement, in fact is personally responsible. Another commonly occurring term is *recourse,and unlike many other actors, we at LogiqPay view recourseas a stamp of quality. To us, a business that sell their invoices with recourseshow a willingness to trust the earnestness and solvency of their customers.

*Recourse In case the recipient of the invoice defaults on payment within stated time, the responsibility of payment falls back to the issuer of the invoice. This means that the business that sells their invoices also has the responsibility of payment by the recipient, removing the risk from the factoring company.

 

“We assume the whole risk when you sell your invoices”

Even though wecontinuously examine the actors in the market, and the conditions they offer, wedon’t know of anyactor’sthat purchase invoices without any form of surety, i.e guaranty or recourse. Despite this many actors still hint that they do exactly that, claim that they shoulder the entire risk. When you sell invoices with guaranty you become personally responsible for payment if the customer defaults. If you however have sold the invoice with recourseit is your business that assumes the responsibility of payment.

To summarize, selling your invoices is an excellent solution for improving liquidity for many businesses. But it requires fair and clear terms, and it is of essence that you ask the broker to explain every paragraph of the agreement, or that you scrutinize it yourself. Most important is to question anything that is unclear, so as to avoid unexpected future surprises in the form of hidden fees and demands of additional payments.

 

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