What is invoice endorsement and how can it help you manage your defaults?

In the business world, non-payment is a common situation that can seriously affect the management of your business. Fortunately, there are tools that can help you manage your defaults more effectively, such as invoice endorsement.

What is invoice endorsement?

Invoice endorsement is a financial transaction whereby a company assigns the right to collect an invoice to another company or a third party, who will collect the invoice. In this way, the company that endorses the invoice receives the amount of the invoice immediately, without having to wait until the invoice is due.

There are two types of endorsements: blank endorsement and full endorsement. A blank endorsement occurs when the transferor signs the invoice without indicating the name of the transferee. In this case, the invoice becomes a bearer document and can be endorsed to any person or company that owns it. On the other hand, full endorsement occurs when the assignor indicates the name of the assignee on the invoice. In this case, the invoice can only be endorsed to the person or company named.

How does invoice endorsement work?

Invoice endorsement is a simple operation that consists of assigning the right to collect an invoice to another company or to a third party. To carry out the endorsement of an invoice, it is necessary to sign a document setting out the terms and conditions of the endorsement.

Once the invoice has been collected, the company that has received the endorsement pays the company that has endorsed the invoice, deducting a service fee.

The process of endorsing invoices is relatively simple. The company wishing to endorse an invoice must follow the following steps:

1. Verify that the invoice meets the legal requirements for endorsement. Not all invoices can be endorsed, so it is important to ensure that the invoice in question meets the necessary requirements.
2. Inform the supplier that you wish to endorse the invoice. It is important that the supplier agrees to the endorsement of the invoice, so it is necessary to communicate the company’s intention to endorse the invoice.
3. Endorse the invoice. Once the supplier has agreed to the endorsement of the invoice, the company must endorse the invoice. This is done by writing on the invoice the following formula: “We endorse this invoice in favour of (name of the person or entity to whom the invoice is endorsed)”.
4. Deliver the endorsed invoice. Once the invoice has been endorsed, the company must deliver it to the third party to whom the invoice has been endorsed.

It is important to note that once an invoice is endorsed, the endorsee acquires all the rights and obligations that correspond to the company that issued the invoice. This means that if the company that issued the invoice does not pay, the endorsee has the same possibility to claim payment of the invoice.

What are the benefits of invoice endorsement?

Invoice endorsement offers a number of benefits for companies that use it, including the following:

• Improves cash flow: By endorsing an invoice, the company that issues it receives the amount of the invoice immediately, which improves its cash flow and provides it with liquidity to meet its expenses.
• Reduces the risk of non-payment: By endorsing an invoice, the issuing company transfers the risk of non-payment to the company that has received the endorsement, thus protecting itself against non-payment and reducing its exposure to financial risks.
• Facilitates collection management: By having another company handle collection management, the company that has issued the invoice can focus on its core business, without having to devote time and resources to collection management.

What risks should you be aware of when endorsing invoices?

While there are many benefits to endorsing invoices, there are also some risks that you should be aware of. Here are some of the most common ones:

1. Risk of non-payment: Endorsing an invoice does not guarantee payment of the invoice. If the debtor does not pay, the endorser may have difficulty recovering his or her money.
2. Risk of loss of control: By endorsing an invoice, the endorser loses control over it. If the endorsee does not pay, the endorser may have difficulty recovering his bill.
3. Liability risk: If the endorser does not check the invoice carefully before endorsing it, he may be liable for errors or irregularities that appear on the invoice.
4. Forgery risk: If the invoice is forged, the endorser may be liable for loss.
5. Tax risk: If the endorsed invoice includes taxes, the endorser may be liable to pay them if the endorsee fails to do so.
6. Risk of additional costs: If the endorser does not carefully review the terms of the endorsement, it may incur additional costs, such as discount fees or interest.

It is important to consider these risks when endorsing invoices. Before endorsing an invoice, it is recommended to verify the creditworthiness of the debtor, carefully review the terms and conditions of the endorsement, and ensure that all parties involved understand the risks and liabilities associated with the endorsement.

Advantages and disadvantages of endorsing invoices

Endorsing invoices can be an interesting option for companies that need to obtain liquidity quickly and efficiently. However, it is important to consider both the advantages and disadvantages of this option.

Advantages:

1. Obtain immediate liquidity. Endorsing invoices can be a quick and easy way to obtain the money needed to meet business expenses, without having to resort to a bank loan. In addition, the process is quick and simple, as it is not necessary to carry out a risk analysis or present guarantees.
2. Reduced financial costs. By endorsing invoices, the company can reduce the financial costs it would have to bear if it were to resort to other sources of financing.

Disadvantages:

1. Loss of control. By endorsing an invoice, the company loses control over the invoice, which means that it cannot decide how and when the invoice will be paid.
2. Associated costs. Although endorsing invoices can be an interesting option, it must be borne in mind that it is a financial service that entails costs that must be assessed before making a decision. The cost of invoice endorsement can be high, as the company acquiring the invoice usually charges a fee for its services. In addition, invoice endorsement can negatively affect the company’s image, as it can give the impression that control over the management of collections and payments is being relinquished.
3. It is not always an effective solution to resolve non-payment problems. If the original debtor is not in a position to pay, the new owner of the invoice will have to bear the cost of the debt and look for other ways to recover the money.

In conclusion, invoice endorsement can be a useful tool for obtaining finance or paying off debts, but it is important to consider its advantages and disadvantages before making a decision. As always, it is best to seek expert advice to make the right decision.

What are your alternatives to invoice endorsement?

There are several online resources where you can get expert advice on invoice endorsement. These include the Spanish Factoring Association (AEF), which offers information and advice on invoice endorsement and other forms of trade finance, the Spanish Confederation of Small and Medium Enterprises (CEPYME) which also offers information and advice on trade finance, including invoice endorsement, or the Spanish Association of Economists which has a financial and investment advice section on its website, where you can find experts who can help you make decisions about invoice endorsement.

Another solution is Byppay, which offers you a solution to non-payment to ensure your collection, avoiding the need to resort to a lawsuit.

On the one hand, we help contractors, who buy from a supplier and sell to third parties. Through the Byppay contract, you can settle your debt with your supplier, without having to wait for your customer to pay you. On the other hand, we help when a customer does not pay a supplier. In this case, the Byppay contract would do the same: instead of your customer paying you for your materials, you would directly access your customer to pay you for your labour.

For more information you can apply to test our application here.