This week we ask Lauren Fullarton, a Consultant at Touch Financial, for an introduction to Spot Factoring as a a business finance solution.
1. Hi Lauren, can you tell us what Spot Factoring is?
All business suffer from late payments. This causes strain on a company’s cash flow as bills need to be paid – suppliers, staff, fuel, etc. Factoring can provide on-going financial support.
Spot factoring, however, allows a business to obtain or receive a cash advance against a single invoice or selected invoices as a one-off transaction. Perhaps it’s VAT month or there is a large order from a customer that needs to be fulfilled.
Providing the debtor is credit worthy and the debt can be verified (checked and confirmed), a transaction can be arranged in as little as 2 to 3 working days – providing a fast cash injection for a temporary cash flow problem.
2. What are the benefits of Spot Factoring?
One of the major benefits of spot factoring aside from the speed of set up is its transparency and ease of management. A lender funding against a single invoice doesn’t need to take control of your whole sales ledger, so a company can retain management and relationships with its customers.
For the same reason it allows a business to escape the clutches of monthly minimums that came with full book factoring.
Spot factoring is also easier to manage. It normally comes with a fixed price – relating to the financial strength of your customer, the amount of cash desired and the duration borrowed, often in the form of a percentage of the invoice value per day – for example, 0.09% of the invoice value per day borrowed.
Spot factoring can be particularly useful for companies with short term cash flow problems, or those not suitable for full book factoring.
Further to this, it doesn’t require any contracts or tie in periods or notice periods, and subsequently, no termination costs if you want to discontinue use.
It’s important to talk to the right lender – that’s when you get the best price and service. Touch Financial have the largest panel and the most knowledge of asset based lenders in the UK – we can help determine the best fit for your business.
It’s important to run a like for like comparison to determine what is best for your business – we can help you do this.
3. Could you give us some instances in which a company may opt for it over a long-term factoring facility?
Spot factoring can work out to be quite expensive if used multiple times in a year, or for longer term funding periods. I would advise to keep a close eye on your cash fow forecast to identify any potential shortfalls in cash and compare the cost of single invoice financing on multiple occasions or whether full book factoring is a cheaper alternative.
We can help you do this.
4. Do most lenders offer Spot Factoring?
Most lenders do not offer spot factoring and will want access your whole sales ledger. Spot factoring is growing in popularity – it’s a quick, flexible fit for almost any business.
5. Do you have any tips on how a business that’s interested in Spot Factoring can pick the right lender?
There are over 90 lenders in the UK market, all with different specialisms and ‘sweet areas’. Working with a lender that ‘specialises’ in your industry is where you are going to get the best price and service. This can be hard to find – to avoid trawling through the web, speaking and listening to multiple sales pitches I would always advise to ‘Ask an expert’ (pun intended!).
I would always advise talking to a credible, respectable independent broker – such as Touch Financial – to obtain detailed guidance, introduction and negotiation services.
As a volume introducer we are often able to help directors to negotiate the lowest fees and ensure they are matched with a lender that best fits their funding needs – whether they be short or long term.
Please do let me know if there’s anything further I can do to help.
To speak to Lauren or one of our other business finance experts, please call 08453889725, email firstname.lastname@example.org or fill in a Get A Quote form and we\’ll be in touch as soon as possible.