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Spot Factoring

What Is Spot Factoring?

Also known as ‘single-invoice factoring,’ spot factoring allows your business to factor an invoice without entering into a long-term relationship with the factoring company once it’s paid.

Traditional invoice factoring arrangements require your company to factor a minimum monthly or yearly amount– or at least, expect customers to factor with the factoring company on a regular basis. Spot factoring is a one-time transaction: you’ll receive an advance on a single invoice instead of committing to a factoring relationship.

How Does Spot Factoring Work?

With spot factoring, the factor sets a minimum invoice amount since they are only guaranteed one transaction. There is no upfront fee: the invoice factoring company understands that you need all of your working capital right now.

The spot factoring process is similar to a typical invoice factoring process:

  1. Your company completes an order and bills the customer
  2. A copy of the invoice is sent to the factor
  3. The factor reviews and verifies the invoice and completes a credit check on the debtor
  4. A portion of the invoice (usually 70-90%) is advanced
  5. The balance is held as a reserve — the factoring company takes a factoring fee from the reserve
  6. Once the customer pays on the invoice, the factoring company will release the remainder of the reserve

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What to Consider for Spot Factoring

For the best spot factoring experience, you should consider the following tips before factoring:

Select your invoice factoring company early: In a pinch, a factor will try to work with you to quickly accommodate your needs. It’s best to select a spot factoring company early on in the process for a couple of reasons:

  • To make sure that the factor can purchase your receivables
  • To prevent invoice aging, which creates a risk that may deter an otherwise good factoring fit

Neat bookkeeping: If you have worked with the company whose invoices you intend to factor in the past, the factor will want to see records of their payment trends. If you can prove that the company pays on time, this can help your cause by:

  • Expediting the approval process
  • Increasing your advance amount
  • Decreasing your interest rate

Available assets: Make sure that your invoices are ‘free and clear’. If your invoice has already been promised as collateral, a factor will be less eager to purchase it.

Honesty: Factors often work with new companies and companies with bad credit, so don’t be afraid to give your account manager that information upfront. The more information you give your account manager, the easier it will be to troubleshoot factoring roadblocks with you, ultimately getting you your advanced cash faster.

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How it works:

Step 1

Your company completes an order or service and bills the customer.

Step 2

A copy of the invoice is sent to the factor.

Step 3

The factor reviews and verifies the invoice, completing a credit check on the debtor.

Step 4

You get an advance on a portion of the invoice, usually 70-90%.

Step 5

The balance is held as a reserve, awaiting customer payment.

Step 6

Once the customer pays, the factoring company releases the rest of your reserve.

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