In the provision of services and goods, entrepreneurs often face the challenge of making agreements without certainty about the timely payment of their invoices. This poses the risk of insolvency, where outstanding amounts can remain unpaid in the event of the customer’s bankruptcy. Entrepreneurs risk never receiving payment. Fortunately, there are five tips to limit this insolvency risk.
The most direct way to minimize the risk of non-payment is by requesting advance payment. This occurs even before goods or services are delivered. This shifts the insolvency risk to the customer.
Advance payments, common in the service sector, are an alternative. The client pays before the start of the work, allowing the service provider to offset their invoices and possibly refund any surplus.
Although sometimes unavoidable, the risk of insolvency can be limited by keeping the time between delivery and payment as short as possible. Installment payments, especially common in the construction industry, build trust between the entrepreneur and the customer but come with the risk that not all installments will be paid in the event of bankruptcy.
Tip! Always request a credit report of your customer! This prevents you from doing business with customers who are not creditworthy from the start. The cost of a credit report is only 12.95 per report, and it always outweighs the costs when an invoice is not paid.
A traditional method is “cash on delivery,” where the customer pays as soon as the goods are received. This provides assurance to the supplier and the guarantee of timely payment.
Security rights, such as a bank guarantee or retention of title, provide the creditor with guarantees for the satisfaction of their claim, even in the event of the customer’s bankruptcy. The choice of the right security right depends on the situation, and its correct application is crucial for effectiveness.
Even after bankruptcy without pre-established securities, there are ways to obtain payment. In certain cases, the director of the bankrupt company can be held personally liable for unpaid claims. However, directors’ liability applies only under specific circumstances, such as conscious knowledge of non-payment when entering into an agreement.
When making decisions about invoicing, it is crucial to make well-informed choices based on our credit report and the creditworthiness mentioned therein. It is also important to consider the reliability of the customer, commercial considerations, and your own financial situation. This way, you can minimize risks and maintain a healthy cash flow.
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