Single Invoice Finance & Spot Factoring how does it work?
Single Invoice Finance – Spot Factoring can be used as an alternative to factoring or invoice discounting.
Single Invoice Funding, Selective Invoice Finance or Spot Factoring, is similar to factoring in that a business can use debtor’s invoices (the sales ledger) as assets. The business uses these assets to raise finance against the value of its invoices. Unlike factoring, single invoice facilities will be offered on an invoice-by-invoice basis and consequently can be used as frequently or infrequently as the business requires.
Single invoice funding gives a company greater control over their business working capital requirements. Where a business wins a new client but requires additional materials to fulfil the order or where they find an opportunity to purchase new machinery or equipment which would greatly benefit the business but they don’t have enough finance readily available – then single invoice finance can be used to provide that immediate cash injection to help make the most of these opportunities. Additionally where a business is faced with an unexpected bill, such as VAT, Corporation Tax or simply repairs to equipment, single invoice funding may be the ideal solution to cover those issues.
Single invoice finance gives a business quick and straightforward access to funds on a short-term basis and has flexible terms. Once a facility has been set up, it takes about 48 hours with a single invoice finance company, the business will only pay when the service is used.
How Can a Single Invoice Facility Benefit My Company?
Quick access to capital
Single invoice funding is a simple and fast process, which enable a business to get immediate access to working capital when they need it most.
No long-term commitment
Unlike with factoring; single invoice finance does not require the business to commit the whole sales ledger into the contract. Where finance is obtained using single invoice finance, once the customer has paid there’s no further financial commitment between the business and the invoice finance company. However the single invoice finance facility will remain in place and can be quickly used again should the company wish to raise finance again at a later date.
The importance of customer relationships
When using single invoice funding the business is responsible for collecting the invoice values (Sales Ledger). This helps maintain the relationship between the business and its customer while ensuring that the agreed invoice finance facility is confidential between the business and the single invoice finance facilitator.
Part of a financial portfolio for business finance
Single invoice factoring can be used in conjunction with other facilities already in place, including lending and overdraft facilities, but with the knowledge that it can be switched on and off, as cash flow requirements change, with no additional costs incurred when it’s not being used.
How Does a Single Invoice Facility Works
Once the single invoice finance facility has been agreed and the facility is in place, a new bank account is set up by the invoice finance facilitator in the name of the business (Client Account).
The Single Invoice Finance Process
1. An invoice is raised by the business as usual and sent to the customer. The invoice will have the payment details of the new bank account.
2. The single invoice finance company will confirm that the relevant products or service has been provided to the customer.
3. The single invoice finance provider will then advance the agreed percentage of the invoice value. The percentage agreed will vary depending on various criteria which will be discussed when setting up the facility. The criteria will include the credit worthiness of the business’ customers. It is important to note that not all invoices will be eligible for single invoice finance and it is vital to clarify what invoices the business can and can’t submit for finance.
4. When the invoice is due the business will use their own internal credit management process to contact the customer to ensure the invoice is paid on time. Some single invoice finance companies can offer assistance if the business has difficulties collecting and this is something that should be discussed when setting up the facility.
5. The customer pays the invoice directly into the new bank account set up by the single invoice finance company.
6. Based on the amount paid by the customer, the single invoice finance company will debit the original advance and together with the fees agreed and the remaining balance is paid back to the business.
Single Invoice Finance – An Example.
The business receiving single invoice finance issues an invoice to their customer with new bank details as set-up in the finance agreement:
Invoice value = £1,000
The single invoice finance company pays 80% to the business’ existing (old) bank account:
Payment = £800
Customer pays the invoice into the new bank account: Customer payment = £1,000
Single invoice factoring company debits initial advance from the new banks account: Advance reclaimed = (£800 + Fees