When it comes to having cash flow problems, no business really wants their clients or suppliers to know of their difficulties. Most consider it bad for business even though most companies do have issues from time-to-time keeping cash flowing in the positive. However, being human, many will judge our businesses unfairly if we have a temporary problem collecting on debts because it can appear that the business itself is struggling.
This may not be the case at all. It may simply be a temporary issue but a problem nonetheless. If you find that you need funds almost immediately, confidential invoice discounting may be the private solution you need to stay on an even keel. Do you know what to look for in a confidential invoice discounting facility? Let’s try to address that question!
When Privacy is of Utmost Importance
As mentioned above, some companies would rather not have their suppliers or clients aware of the fact that they are struggling. If privacy is important, there are a few reasons why the best solution can be confidential invoice discounting. You can choose to maintain control of your accounts while other forms of factoring put your ledgers in the hands of the lender.
Also, did you know that when loans are made against your lender, your credit score is of much lesser importance? Many invoice discounting lenders don’t even run a credit report because they are going to be repaid by your accounts receivable. As they are paid, the lender is paid through a separate account into which all transactions are posted. Whether or not you know it, once a lender runs your credit, your score takes a hit that is visible to anyone else who runs a report. That isn’t very confidential, is it?
In other words, if privacy is important, it is imperative that you question whether or not your credit is going to be run and if that hit will be visible in future reports.
The Difference Between “With Recourse” and “Without Recourse”
You will also want to know the difference between a “With Recourse” and “Without Recourse” contractual agreement with the confidential invoice discounting provider. The difference is really fairly basic. A “With Recourse” agreement simply means that the lender has the legal right to claim back any percentage not collected on those invoices they made loans against. “Without Recourse” might sound like a better option at first glance, but it may not be the best deal.
Although that lender may not have recourse to collect any uncollected amounts, there are other stipulations to be concerned with. That creditworthiness mentioned above is one of those issues. If you can’t qualify for a traditional loan, you may not qualify for confidential invoice discounting without recourse. Also, you can expect to pay higher fees, which may eat into any profits you would accrue when the loan and fees are being repaid. When presented with these options by a confidential invoice discounting company, this is some of what you need to know before choosing an option.
What appears to be the best deal on the surface might not be, so do the math first before agreeing to one or the other.
Do You Really Need Confidentiality?
So far, we have looked at why you might want privacy when borrowing what amounts to a cash advance against unpaid invoices. However, what you also need to think about is whether or not privacy is all that important. How many of your suppliers or B2B peers are really going to look at your credit? If you’ve established an ongoing relationship with them, they probably won’t bother to keep running your report. On the other hand, if you are going to be using new suppliers, then privacy may be of utmost importance.
You do have the option to choose the disclosed option in confidential invoice discounting, which may be less expensive in the long term. Some lenders may charge more for that confidentiality, so do remember to ask about this as well, and also remember that if privacy isn’t all that important, this may not be the type of invoice factoring or invoice discounting you need.
If privacy isn’t important, a disclosed form of the contract comes with the advantage of lower fees.
Working with a Broker is Your Best Option
When it comes right down to it, you know that you need to borrow funds against outstanding invoices. Sometimes you are given the option to borrow against single invoices and other times the amount lent to your company is against the total uncollected debt.
Not all lenders offer both options, so to reduce the amount of time researching which confidential invoice discounting facility is going to have what you need, a broker is your obvious solution. A factoring broker can help you find the confidential invoice discounting facility best suited to your particular circumstances and needs.
Time is money, so let us do the legwork for you so that you can go on about business as usual.
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