What happens if my customers do not pay their invoices?
If your customers do not pay their invoices, it can impact your invoice finance facility and the funds advanced against those invoices. The exact process and consequences may vary depending on the terms and conditions of your specific invoice finance arrangement and the policies of the invoice finance provider. Here are some general scenarios that may occur:
- Recourse vs Non-recourse: Invoice finance facilities can be structured as recourse or non-recourse arrangements. If your customers do not pay their invoices in a recourse arrangement, repaying the advanced funds may fall back on your business. You may need to refund the outstanding amount from your funds or replace the unpaid invoices with other eligible invoices. In a non-recourse arrangement, the risk of non-payment may be absorbed by the invoice finance provider, and you may not be required to repay the advanced funds for the unpaid invoices.
- Repayment from future invoice collections: In many invoice finance arrangements, the provider will collect the invoice payments directly from your customers. If your customers do not pay their invoices, the invoice finance provider may still attempt to collect the payments from them. If the payments are eventually received, the advanced funds may be repaid from those collections, and you may receive the remaining funds, subject to any fees, charges, or adjustments.
- Additional collateral or replacement of unpaid invoices: In some cases, if your customers do not pay their invoices and you have a recourse arrangement, the invoice finance provider may require you to provide additional collateral or replace the unpaid invoices with other eligible invoices to maintain the funding. This may involve providing extra security, such as personal guarantees or other assets, or replacing the outstanding invoices with invoices from other customers who have better payment records.
- Collections and legal actions: If your customers do not pay their invoices and you have a recourse arrangement, the invoice finance provider may take collections actions, including sending reminders, engaging in collections efforts, and even taking legal steps against the customers to recover the outstanding payments. The outcome of such actions will depend on the specific circumstances, including your customer’s creditworthiness and financial situation.
It’s important to carefully review the terms and conditions of your invoice finance arrangement, including the recourse or non-recourse nature of the facility, and understand the potential consequences if your customers do not pay their invoices. Discussing and clarifying these scenarios with your invoice finance provider beforehand can help you better understand the risks and implications and take appropriate actions to minimise any potential impacts on your business.