Your customer's creditworthiness affects funding.
Did you know that your customer’s creditworthiness affects funding for your business? If you are considering selling to a client who has a low credit rating, your invoices may not be paid in a timely manner (or at all).
Understanding this dynamic can help you make the most of invoice finance and keep your business financially alert and therefore, stable.
In this blog, we explore how your customers affect invoice finance, why their credit profiles matter, and how Partnership Invoice Finance can help your business.
The Role of Customer Creditworthiness in Invoice Finance
Invoice finance providers assess the risk of funding against your unpaid invoices. A key factor in this assessment is the creditworthiness of your customers. Simply put, your funding potential and the payment of invoices depends not only on the quality of your invoices, but also on your customers’ ability to pay them.
Your customers creditworthiness can affect the amount of money you can draw upon. For example, if the invoice value is £50k to a highly rated client you could receive the full 80% invoice value. However, if your client’s credit rating is low then you will potentially receive less funding against that invoice.
Why Does Creditworthiness Matter?
Risk Assessment: Invoice finance providers evaluate the likelihood of payment delays or defaults. Having customers with poor credit can limit the amount of finance you receive.
Funding Amounts: Higher credit scores and funding limits mean greater trust from providers, allowing you to maximise your business funding.
Cash Flow Stability: Dealing with creditworthy customers reduces the risk of untimely payments, missed payments or non-payment, therefore reducing the risk of cash flow interruptions or ultimately the risk to your business.
How to Evaluate Your Customers’ Creditworthiness
To optimise your invoice finance utilisation, it’s essential to assess the financial health of your customers. Here are some steps to consider:
Credit Checks: Use tools like Experian or Credit safe (for example) to review your customers’ credit histories.
Payment History: Analyse how promptly they’ve paid invoices in the past.
Customer Agreements: Include payment terms that incentivise timely settlements.
By maintaining a portfolio of reliable clients, you can strengthen your position when applying for invoice finance.
How Customer Creditworthiness Impacts SMEs and Startups
For SMEs and startups, cash flow is the lifeblood of daily operations. Here’s how customer creditworthiness can directly affect your business:
Access to Funds: Invoice finance providers might offer lower funding levels or even reject finance linked to high-risk customers.
Risk Management: Associating with unreliable customers could harm your credibility with providers. It is a big risk to the business if a client doesn’t pay. Not many businesses can take a large hit of an invoice or debt not being paid.
Operational Challenges: Delayed payments from customers with poor credit can disrupt your ability to meet expenses such as payroll and suppliers and even staff.
Benefits of Partnership Invoice Finance’s Approach
At Partnership Invoice Finance, we understand the unique challenges faced by SMEs and startups. Our personalised approach ensures you receive:
Expert Guidance: We work closely with you, by analysing clients and credit risk together can assist your business.
Flexible Solutions: Our services adapt to the needs of your business, no matter its size.
Transparent Terms: We believe in clear and straightforward agreements, giving you confidence in every transaction.
Practical Steps to Enhance Invoice Finance Utilisation
Diversify Your Client Base: Avoid relying too heavily on a single customer to minimise risk.
Strengthen Payment Terms: Clearly outline payment expectations and penalties for late payments in your agreements
These practices, coupled with tailored support from Partnership Invoice Finance, can empower your business to thrive.
Recourse Factoring Builds Client Relationships
Recourse factoring is a popular choice for SMEs and startups seeking enhanced control over their cash flow. One of its standout features is the inclusion of third-party credit control services. This means that the factoring provider takes on the responsibility of chasing payments, saving your business time and resources. With professional credit control, you can ensure prompt payments and reduce the administrative burden of managing customer accounts. With our personalised approach, your client relationship continues to build, as unsavoury payment delay conversations are minimised.
Additionally, recourse factoring often comes with lower fees compared to non-recourse options, making it a cost-effective solution for businesses looking to optimise their working capital without overextending their budgets.
Conclusion
The creditworthiness of your customers plays a pivotal role in your invoice finance journey. By partnering with an experienced provider like Partnership Invoice Finance, you can unlock the full potential of this funding solution.
Ready to learn more about how your customers affect invoice finance? Contact us today for expert advice tailored to your business needs.
About the Author:
Chris Falby, Sales Director
With over two decades dedicated to helping businesses in the South East thrive, Chris, Sales and Marketing Director, brings a wealth of knowledge in securing financial assistance for SMEs. His career began in mainstream banking, where he gained valuable experience managing advances. This foundation, coupled with his extensive network and expertise in independent funding, allows Chris
