Once a business pays an invoice, single-invoice factoring (also known as ‘spot factoring’) allows businesses to enter into a relationship with the factoring company.
Spot factoring is a process by which businesses can factor an invoice without a long-term relationship with a factoring company. except spot factoring, invoice factoring set-ups necessitate that your company factor a minimum annual or monthly amount, or regularly use the factoring company’s services. Spot factoring is a single-time deal: you’re given an advancement on an one invoice instead of making a commitment to enter into a relationship with the factoring provider.
How Does It Work?
Spot factoring is ideal for businesses that only require a guarantee on a single transaction. There is no fee involved and the invoicing company gives you access to all of your company’s working capital immediately.
The process of spot factoring is comparable to a conventional invoice factoring process is as follows:
- After your company finishes an order, you then submit the bill to the client.
- The factor will review and verify the invoice, checking the debtor’s credit.
- A part of the invoice’s value is paid in advance. (up to 70%)
- Excess amount is reserved, and then the factoring company charges a small factoring fee from that amount.
- After fulfilled the payment, the factoring company release the rest of the funds that were being held.
What to Keep in Mind for Spot Factoring
There are a few things to keep in mind before you start invoice factoring which will help ensure you have the best experience possible:
Choose a factoring company ahead of time: Sure, if you’re desperate a factor can work with you on short notice. But it’s always better to choose a spot factoring company for two main reasons:
- ensure that the factoring company can buy your receivables.
- Keep your invoices up to date to increase the chances of being approved for factoring.
Neat bookkeeping: factoring provider will want to see records of your past payment trends with the company you have worked for if you intend on factoring their invoices. If you can show that the company pays promptly, this will improve your situation by:
- Get approved immediately
- Increase your advance percentage
- Reduce the rate
Available assets: ensure invoices to be paid in full, make sure they are not pledged as collateral. If they are, the factoring company will be less like to buy it.
Honesty: Don’t hesitate to let your manager know if you’re a new company or companies which have bad credit. The more facts you share, the quicker they can help resolve any factoring problems.
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