When you factor your invoices, you are essentially selling them to a factoring company at a discount. In exchange, the company provides you with an advance on the value of the invoices.
If you don’t pay the factoring company, they will not only withhold future advances, but they may also take legal action to recover the money they are owed. In addition, non-payment can damage your business’s reputation and make it more difficult to obtain financing in the future.
As such, it is important to be sure that you can repay any money you borrow from a factoring company before entering into an agreement.
What happens if my customer doesn’t pay the factoring company?
If the customer doesn’t pay and you have a 90 day recourse period from the date of the invoice and the debtor has not paid after 90 days from the invoice date, then the invoice is recourse’s. This means that any prepayment will be withdrawn.
If your customers fail to pay the factoring company, it will be dependent on the type of factoring facility you have. If your agreement with the factor is that of a non-recourse account, then it will be the responsibility of the factoring company to seek payment on the unpaid invoices. If the customer fails to pay, then the factoring company will suffer the short fall, but your company will not be penalised.
Should you have opted for a recourse facility with the factor, you can will be held responsible for any short fall should your customer not pay on an outstanding invoice.
If you have taken out an insurance policy for non payment of customer debts with your lender, the policy will active after your terms of trade have expired.
Option to buy back the invoice
The lender may give you the option to buy back the unpaid invoice and seek payment directly from the customer. This will stop the lender taking legal action against your customer if the invoice is significantly overdue.
Request to offset the overdue invoice
You can request to offset the unpaid invoice against the current sales ledger if you don’t have the funds available to buy an overdue account, you may have the option to swap invoices. You can give the factor another one of your accounts receivable in return for that which has been retuned unpaid.
Do I have to pay a factoring company
It is dependent on the type of facility you have with the factoring company if you pay them or not.
A factoring company is a type of financial institution that provides businesses with funding in exchange for invoices. The way it works is that the business sells its invoices to the factoring company at a discount.
The factoring company then collects payment from the customer on behalf of the business. While there are some fees associated with using a factoring company, there is typically no upfront cost.
Instead, the fee is taken out of the amount that the business receives for the invoice. As a result, businesses only pay for the service if and when they receive funding. This makes factoring an attractive option for businesses that need flexible, short-term funding.
What happens if I don’t pay a factoring fee
If you don’t pay a factoring fee, the company may not continue to provide the service or may charge a higher rate. Factors typically charge a percentage of the invoice amount, so if you don’t pay the fee, you’ll still owe the full amount of the invoice.
If you’re using invoice factoring to improve your cash flow, not paying the fee can put you in a difficult financial position. It’s important to read the terms and conditions of your agreement carefully to understand all the fees involved and when they’re due. If you have any questions, be sure to ask your factoring company before signing an agreement.
How do factoring companies recover funds
Factoring companies recover funds firstly by using their in-house credit control and collections teams. If that team of credit professionals cannot recover the funds they will start with legal proceedings.
The credit team will use all avenues to collect the money before instruction legal to issue court action.
- Offer the customer a payment plan to repay the over due invoice
- Issue a letter before action
- Issue a county court judgment
- Issue a winding up petition
Can you sue a client for non payment
Yes, you can sue a client for non payment via the county court, via a county court judgment in the UK. If you’re considering taking legal action to recover what you’re owed, there are a few things you should keep in mind.
First, it’s important to understand that clients can only be sued for non-payment if there is a written contract in place that stipulates the terms of payment. Without a contract, you’ll likely have to pursue other avenues for recourse, such as sending a demand letter or taking them to small claims court.
Even with a contract, however, suing a client can be expensive and time-consuming – not to mention the potential damage to your professional reputation. Before taking any legal action, be sure
Seasoned professional with a strong passion for the world of business finance. With over twenty years of dedicated experience in the field, my journey into the world of business finance began with a relentless curiosity for understanding the intricate workings of financial systems.