Authored by Phil Cohen
If your business experiences isolated cash flow issues, but you do not want to commit to a long-term relationship with a factoring company, then spot factoring could be the solution. Unlike traditional invoice factoring, spot factoring, also known as single-invoice factoring, is when a business factors an invoice without entering into a lengthy relationship with the factor after payment.
Difference of Spot Factoring
Spot factoring is similar to traditional invoice factoring in many ways. The main difference is that traditional invoice factoring requires a business to factor a minimum amount on a monthly or yearly timeline, or at least on a regular basis. With spot factoring, it is a one-time transaction. You will receive funds from a single invoice instead of entering into an ongoing factoring relationship. Most of the other aspects are the same as traditional factoring. Your business completes the promised work and bills the customer. A copy of the invoice is then sent to the factor. After verification, a portion of the invoice is advanced, which is usually 70-90% of the invoice total. The rest of the money is deposited into a reserve account that is released to the business following the customer’s payment of the invoice. There is a small factoring fee that will be subtracted from the reserve account payout.
Tips for Spot Factoring
If you are thinking about spot factoring, there are some aspects to take into account first. It is preferable to select your invoice factoring company early. Although many factoring companies will try to accommodate your needs on short notice, it is better to find a spot factoring company early to make sure your chosen factor can purchase your receivables and to prevent invoice aging, which is a risk that can turn away an otherwise good partnership fit. It is important to find a factor that understands your industry and needs. Working with a factor broker, such as Factor Finders, can help match you with the right factoring company. If you will be factoring in the future, start with neat bookkeeping now. The factor will want to see records of payment trends if you have previously worked with the company whose invoice you want to factor. Factors are less likely to purchase invoices that have already been promised as collateral. Lastly, it is important to be honest with the factor about your credit history. Many factors work with startups and companies with less-favorable credit records, so do not keep this information from the factoring company. By being upfront with your challenges, the factor can help you manage them and get your cash advance faster.
Factor Finders Can Help
Factor Finders can help you find the perfect factoring company fit. Contact us today to learn more. We will be in touch within minutes to get you started on the path to better cash flow.