Authored by Phil Cohen
For small businesses that experience a temporary disruption in cash flow, traditional factoring may not be a good fit. When you only want to factor for one time, instead of on a regular basis, spot factoring can be the answer. With spot factoring, also called single-invoice factoring, a small business sells only one invoice to a factoring company with no expectations for a long-term relationship with the factor. There are three top benefits to spot factoring that will appeal to small businesses.
Sell a Single Invoice
Unlike traditional factoring where several invoices are sold, a business only sells one invoice with spot factoring. You do not need to feel obligated to form a long-lasting partnership with the factor as you are simply selling one invoice. Spot factoring does not require monthly or yearly factoring and you are not committed to any arrangements as this is a one-time transaction. The other aspects of spot factoring are the same as accounts receivable factoring. You will submit the invoice to your factor after approval. Once the factor verifies the invoice, you will receive a cash advance of 70-90% of the invoice value. The rest of the money is deposited into a reserve account to be released following payment from your client.
Factoring is Debt-Free Financing
Spot factoring does not accrue debt like a bank loan. With factoring, you are receiving a cash advance on money your company has already earned. You do not owe interest or any other charges other than a small factoring fee that is taken out of the reserve account. Bank loans make you wait weeks or months for approval and funds to be disbursed. Alternatively, spot factoring approval usually happens in 3-5 days and you will receive cash in 24 hours after approval.
Credit History Does Not Matter
For new businesses or those with poor credit history, bank loans can be intimidating due to the high probability of rejection. Since factoring is using money your company has already earned, your credit history is not considered. In fact, the credit history of your client is more important than your own as the factor takes over collecting money from the client. Even if you have been denied a bank loan in the past, you can still qualify for spot factoring.
Contact Factor Finders Today
Working with a factoring broker can help you find the right factor for your business. Contact Factor Finders today. Our expert team will respond within minutes to connect you with a factor from our network of more than 75 factoring companies.