Unveiled: Profiting through the unsecured buying of outstanding invoices
In the ever-evolving world of business, finding ways to maintain a steady cash flow while managing risk is essential. One such solution that has been gaining traction is unsecured invoice purchasing, a method that has been in use since 1879 by Creditreform, Germany's leading provider of business information, marketing data, and solutions for receivables management.
Retailers can now decide which customers are allowed to pay on invoice through internal scoring models or external credit reports. This method not only provides customers with a popular payment option but also allows businesses to avoid significant financial burdens.
One company at the forefront of this innovation is Lynck Solution GmbH, which specializes in digital payment processing for e-commerce and point-of-sale transactions. In collaboration with Creditreform, they have developed CrefoPay by lynck, a seamless online payment processing solution that supports merchants in managing their risk.
The benefits of unsecured invoice purchasing are numerous. For one, it provides retailers with faster, collateral-free access to working capital, enhancing cash flow flexibility. This conversion of unpaid invoices into immediate cash allows businesses to maintain steady operations and extend more flexible payment terms to customers without straining their own liquidity.
Moreover, using a risk matrix alongside invoice purchasing helps retailers assess the creditworthiness of buyers before acceptance, reducing the chance of non-payment and potential losses. This risk management strategy is crucial in mitigating risks and safeguarding retailer interests.
However, it's important to note that unsecured invoice purchasing comes with its own set of challenges. Higher costs, potential credit risks, and the need for robust credit risk management systems are all factors that retailers must consider. Invoice financing often carries higher fees or interest rates compared to secured financing because the lender or factor assumes more risk.
Without collateral, the financing amounts may be smaller, possibly limiting the retailer’s flexibility in managing larger cash flow needs. The retailer remains exposed to customers’ failure to pay invoices unless non-recourse factoring is in place, where the factoring company absorbs some of the risks.
Implementing and maintaining a rigorous risk matrix demands ongoing monitoring and credit evaluation of customers, which can be resource-intensive but necessary to mitigate losses. Across Europe, Creditreform has over 4,000 employees, 162 business locations, and an international business network for its customers, providing extensive resources for businesses looking to implement this solution.
Despite these challenges, the benefits of unsecured invoice purchasing are compelling. TeamAt Payment & Banking, an independent economic hub in the finance and fintech industry, reports that this method can lead to cost savings as there are no fees for insurance or external providers. Furthermore, more than 40% of German consumers prefer to pay on invoice in e-commerce, making this a popular payment method among consumers.
In conclusion, unsecured invoice purchasing with a risk matrix provides retailers faster, collateral-free access to working capital and enhances cash flow flexibility. However, this comes with higher financing costs, potential credit risks, and the need for robust credit risk management systems. The risk matrix helps mitigate risks by assessing customer creditworthiness and ongoing payment behavior to safeguard retailer interests.
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