- 02 Oct
Is Bad Debt Protection Included In Your Invoice Finance Quote
Leading on from my previous post about explaining how to compare invoice finance quotes, and how customers often focus on minor components of the overall cost - rather than those that really make the major difference, I saw an example of confusion over whether or not bad debt protection is included in an invoice finance quote.
Is Bad Debt Protection Included?
The answer is that it depends on the provider.
Some invoice finance companies include bad debt protection with all facilities and with others it is an optional additional service. The same applies to way that the charges are set out. In most cases the provider will express the fee for this service as a percentage of turnover that will be included within the service charge or the administration charge (depending upon the type of facility - referred to as service charge below for ease).
For more information about how charges are structured see our related article: Invoice Finance Costs.
In some cases the bad debt protection element is included within the stated service charge, other providers separate that element out so that it is a separate percentage value. An issue can occur when it is included, as in the case that I mentioned above, that sometimes the client doesn't appreciate that this service is included in the charges.
Firstly it is a problem as no one wants to be paying for something they may not want, but it also creates an issue when comparing quotes from different providers. If you have one quote with the BDP element included (non recourse) and another with no BDP (recourse) you may look at the recourse quote and assume it is cheaper. It could of course be the case that the non recourse provider might be cheaper, if the BDP element were removed.
It is vitally important to understand what type of facility your provider is offering, and if there is BDP, is the fee included within the overall service charge.
Questions To Ask
You could ask your provider the following questions:
- is this a recourse (no BDP) or non recourse (with BDP) quote?
- If non recourse - is the charge for bad debt protection included within the service charge?
You should also note that different terminology is used by different providers. Some call non recourse facilities "protected" e.g. protected invoice discounting or PID. Others will call it "non recourse invoice discounting".
Product Information: What is Bad Debt Protection?