How To Protect Yourself From Customer Bankruptcy

Did you know you can use factoring to protect your business from customer bankruptcy? As a business owner, you understand how circumstances can impact companies, especially those outside your control. Statistics from the Administrative Office of the U.S. Courts show that in the calendar year 2022, business bankruptcy filings fell, though individual filings under Chapter 13 increased significantly. How can you shield your small business from a customer going into bankruptcy, leaving your invoice unpaid?

Recourse Factoring vs Non-Recourse Factoring

Kore Capital Corporation offers a factoring service to clients, where you sell your accounts receivable (invoices) to us in exchange for a proportional cash advance. Once your customer pays the invoice, we deduct our factors fee and pay the balance out to you. There are generally two types of factoring, recourse factoring and non-recourse factoring. With recourse factoring, you are ultimately responsible for the debt if your customers don’t pay, and with non-recourse factoring, the factoring company carries the liability and potential loss.  

Benefits And Disadvantages Of Non-Recourse Factoring

Factoring, whether recourse or non-recourse, improves your cash flow and is especially helpful if you want to expand, choose to offer extended payment terms to clients, or need to cover unforeseen expenses. Getting approved is a relatively simple process when you have creditworthy customers. Non-recourse factoring protects you if your clients become insolvent or declare bankruptcy. Due to the risk to the factoring company, the associated fees might be higher and the credit limit lower than with recourse factoring.

More Actions That Protect Your Business Against Customer Bankruptcy

What other actions can you take to protect your business against customer bankruptcy? Diversify your client base and try to avoid having only one big client. It is a good business practice, especially when you are a small business, to request payment before work begins, whether a full monthly upfront fee or a deposit. Let your client sign a contract, and keep all documentation up to date if you need to go to court to appeal for payment. Be practical and trust your instinct. If payments are not made as agreed, pause the work to minimize your liabilities.    

Do you have reliable clients, but they are slow-payers? At Kore Capital Corporation, we provide short-term working capital to small businesses through accounts receivable financing, also known as factoring. Contact us today.