What is spot factoring and how does it work? Is it the correct factoring solution for my business venture.
If you are a business that is looking to fund a single invoice, then spot factoring is the way forward. it offers a flexible way to sell invoices at a discount to a third party (a ‘factor’, or spot factoring company).
These are the questions we will be providing you with answers to in today’s article.
Spot Factoring UK– everything you need to know
Spot Factoring allows a business to access funds that are currently tied up in unpaid invoices. This is done by selling the invoices to a third-party (a factoring company) on a one-off basis. You will then receive payments much quicker than you otherwise would.
The business will first concur fees and charges with a spot factoring organisation and afterward conclude which invoice(s) it needs to allot to them. The spot factoring business, after the invoices have been selected, will pay a percentage of its worth, ordinarily around 70-85%, to the business in question.
Beyond this, the spot factoring company will then pursue the invoice from the customer, and once settled completely, will repay the business with the outstanding balance minus the concurred expenses.
Spot factoring is also known as Selective Invoice Discounting.
When is spot factoring useful?
Regardless of what your need for quick cash is, spot factoring offers you the ability to gain fast funding with no additional debt. You won’t be tied down to a lengthy contract that restrains you, nor will you have any ongoing fees to cover. Perhaps you need the money to execute a new business idea, achieve rapid growth, or tide over an unexpected slow sales period, you can do any of these things by utilising spot factoring.
If you own a seasonal business venture that has a sudden increase in sales around the holiday period for example, so you have now run into higher production costs, spot factoring would be a likely wise approach for you to take. This is a prime example of the sort of spot factoring success story we have witnessed time and time again.
Furthermore, when you are faced with customers making late payments on invoices, spot factoring will pose as the perfect financial solution. Your business will receive the funds it has spent countless hours chasing up, with no need to worry any longer. The burden of chasing down customer payments will be taken away from you and those responsibilities will be placed into the hands of someone else.
Advantages of spot factoring?
We will now run you through the main advantages of utilising spot factoring:
You will receive funds quickly –
As soon as you sell the invoices to a spot factoring company, you will receive funding. This instant access to cash makes spot factoring a perfect solution for businesses in need of money.
There is control over the arrangement –
When opting to use spot factoring, you will not have to put all your invoices up for sale, but instead be able to pick and choose which ones you want to hand over to a factor. This gives you control over any agreement that you make and means that you are always the one making the key decisions revolving around your business venture.
Easy to access –
This is a great form of finance that will be available to you even when you cannot access other more traditional forms of funding, such as business loans. Also, the invoice itself is the only security that will be required, so you can rest assured that you aren’t signing up for anything that will land you into further financial troubles.
The debt stops here –
You should be aware that there is no additional debt incurred to the company choosing to use spot factoring. This will put the business owner’s mind at ease when opting for this finance solution. This form of factoring is a great way to improve your working capital.
Disadvantages of spot factoring
We will now investigate the potential disadvantages attached to spot factoring:
I can become costly –
There are most certainly cheaper alternatives if you are looking to raise finances, though they may not be as accessible as this. If you can find cheaper methods that are readily available to you, you should consider those first.
Possible relationship troubles –
The relationship between the supplier and client may become negatively affected by spot factoring, as it becomes the provider’s responsibility to chase up late payments of invoices.
Large invoices are better suited –
You should be aware that spot factoring works best with larger invoices, rather than small ones.
The perfect cash flow solution for you?
This form of factoring allows you to quickly unlock cash from your unpaid invoices.
As one of the market leading lenders in the UK, we can release up to as much as 90% of your unpaid invoices within a 24-hour period. The full amount will be released to you as soon as the invoice is paid by your customers. If this sounds like the perfect solution for your business, do not hesitate to get in touch with us today.
Be aware that this is only one form of finance, and there are many other types available for you to utilise. For instance, our confidential invoice discounting, or our single invoice factoring solution could be an ideal option for your venture to consider should you wish to fund your full ledger compared using spot factoring..