Spot Factoring – Will it Work For Your Company?

Even with a successful company and an established customer base that pays mostly on time, cash crunches happen from time to time. Perhaps one of your customers is in a tight spot and extended their payment, or you chose to expand your company and now need more cash before you get paid. If your company is one of the many that find themselves in this position, spot factoring may be the solution for your business.

What is spot factoring?

Spot factoring is a single-transaction version of standard invoice factoring. Rather than signing a factoring agreement for ongoing services, you submit a single invoice to the factoring company for verification and funding.

The approval and advance processes are the same, as is the advance rate (typically 70-90 percent of the face value). As with an ongoing invoice factoring relationship, the factor will hold the balance of your invoice in reserve and collect directly from your clients, then send you the remaining amount minus their fees. Unlike traditional factoring, however, a factoring company will likely establish a minimum invoice amount to factor so the transaction is profitable for them as well.

Once your spot factoring transaction is complete, you are under no further obligation to the factoring company – nor they to you. You can continue your business as usual and, if necessary, approach them if you need to spot factor another invoice. Best of all, you can develop a spot factoring relationship into a full invoice factoring relationship if your funding needs become more consistent.

When should I look for a spot factoring company?

Spot factoring is like any other financing method in that you want to begin your search as soon as you identify a potential need. By speaking with a factor in advance, you can reduce the amount of time the factor needs to approve your invoices when the time comes. Not only will this allow them to help you faster, but it will also prevent your invoices from aging too far out when you do factor them.

What do I need to be approved for spot factoring?

The first and most obvious thing you need for spot factoring is an invoice! Your invoice should be for work completed and you should send a copy of it to your customer as usual. In addition, the invoice or invoices you wish to spot factor should not be pledged to any other entity as collateral for debt.

If you have a history of working with the customer whose invoices you wish to spot factor, you should also present the spot factoring company with prior payment records that establish a solid payment history. This can help you secure funding faster and potentially benefit from a higher advance or lower factoring rate.

What you don’t need to qualify for spot factoring is a spotless credit history. Spot factoring companies regularly work with new startups or other companies that have faced financial difficulty in the past, and are able to work past many common credit issues that arise during the due diligence process. As long as you are forthcoming about any financial issues your spot factor will be able to address them more quickly – and you will establish a strong foundation for your future factoring relationship.

Factor Finders works with a wide network of factors that offer spot factoring to shore up sudden gaps in your cash flow. Learn more about our spot factoring program, then call to speak with an account manager today.