What is spot factoring?

Spot factoring is a type of facility which allows businesses to fund cash flow by selling an individual invoice or debtor to a third party (a “factor”).

Spot factoring is also known as selective invoice discounting or single invoice factoring.

Unlike traditional invoice finance facilities you do not have to finance your whole sales ledger and can be selective with the specific invoice or debtor you require funding against.

One of the best parts of spot factoring is that there are no lengthy contracts which you are tied into. This means you can pick and choose your invoices or debtors to be funded and can use the facility for as little or as long as is needed.

Spot Factoring is a simple facility and therefore costs are very transparent. These are usually a fixed cost against either the invoice notified or the amount borrowed.

Spot Factoring can be provided on a confidential basis which means your debtors are unaware of the facility, or it can be provided on a disclosed basis which means the lender will complete the credit control function on your behalf.

Why use Spot Factoring

The key reason for using Spot Factoring is to help increase cash flow and to avoid having to wait between 30 and 90 days to get paid. Spot Factoring allows you to receive funding against your invoices on day one. Once goods / services have been delivered or completed our panel of lenders can advance up to 90% of the invoice value (less fees). This helps your businesses cash flow, to pay suppliers and other outgoings. The remaining 10% is forwarded to you once the debtor has paid their invoice.

How spot factoring works

The business raises an invoice and then notifies this to the Spot Factoring lender per the terms of the agreement.

The spot factoring lender then advances a percentage of the invoice value up front to the business which can be as much as 90%.

When the debt becomes due the lender may undertake some credit control duties to obtain payment. The lender after getting paid will forward on the remaining balance to the business.

Advantages of spot factoring

The main advantage of Spot Factoring is to release funds which are tied up in individual unpaid invoices which will help with cashflow. As payment terms are on the increase Spot Factoring takes out this issue and enables businesses to use the funds which would otherwise not be available to be used elsewhere in the business. These extra funds can be uses as a cash boost or simply to pay suppliers on time, pay wages or inject cash into a new project, office or product.

Disadvantages of spot factoring

Spot factoring lenders often charge a premium for the flexibility on offer. If used very regular or for a whole debtor book a traditional Invoice Financier would be a better solution.

The set up time is approximately 1-2 weeks depending on the lender. If funds are needed urgently Spot Factoring may not be suitable.



All Star Funding Solutions Limited

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If your business requires funding then we can help you find the solution

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