There’s always some risk to your accounts receivable. You’ve performed the work and sent your invoice, but will they pay you? Not always.
Depending on the size of your contracts and how often your clients fail to pay, your business could face some serious liabilities. Some businesses even declare bankruptcy after taking on a string of bad clients.
There are ways to reduce the risk of your accounts receivable. Business owners may turn to accounts receivable insurance or non-recourse factoring to find compensation for those clients who can’t pay. Which option is better for you?
Accounts Receivable Insurance
For a premium, accounts receivable insurance offers you protection from damages you incur from unpaid invoices. If you have to hire a collection service your insurance policy may cover the cost. Or, if you have to take out a loan in order to make up the gap for an unpaid invoice, your policy may cover the interest on the loan. This insurance is also useful if a disaster or technological failure has caused you to lose track of your account receivable records causing you to be unable to collect.
Just like other insurance policies, your accounts receivable insurance will have a policy limit. If you have large invoices you may need to pay high premiums in order to get them covered. Further, your premium rates will go up if you need to use the insurance. There’s also the chance that the insurance company will find a reason to deny your claim.
Non-Recourse Factoring
Non-recourse factoring, on the other hand offers more benefits and less risks. How does factoring work? You send your invoices to the factoring company and they send you the cash, minus their fee. At J D Factors we send you the cash owed you within 24 hours. With us, you have your money without worrying about hiring a collections company or taking out a loan to cover your losses.
You’re paid, but what about your clients? The factoring company collects from your clients directly. With non-recourse factoring, if your client never pays because of a credit issue such a bankruptcy, the factoring company takes the loss for you. That’s much more convenient and easier to plan around than trying to make an insurance claim only after your client has refused to pay.
For this reason, non-recourse factoring helps businesses keep a healthy cash flow and a more flexible business model that is able to invest or expand when needed.
Benefits to Insurance Brokers
If you’re an insurance broker, why would you mention non-recourse factoring to your clients? Not all of the contacts you have will end up choosing accounts receivable insurance. However, you can still make money on these contacts for whom accounts receivable insurance isn’t a good fit. Simply refer them to J D Factors for non-recourse factoring. We’ll give you a referral fee. Plus, if you can offer your clients the solutions their business needs, you’ll earn their trust, they’ll stay with you for all their insurance needs, and they’ll refer you to their peers. Talk about a win-win-win!
Contact J D Factors today to learn how to reduce the risk of your account receivables with non-recourse factoring for yourself or a client.
