What is spot factoring? How does it work and what are its unique benefits when contrasted with other invoice finance facilities? Our latest guide collates many of the key details which you’ll need in order to assess whether this increasingly popular cashflow solution is the right one for you, including a number of case scenarios in which businesses of specific sizes and sectors could stand to gain from a single invoice factoring arrangement.
What is Spot Factoring?
Spot factoring is, in essence, an invoice finance arrangement that allows businesses to access cashflow support by receiving a percentage of their invoice’s value well in advance of its projected payment date. Yet whereas other services such as discounting or traditional factoring will usually see a firm receive advance funding for all of its invoices, spot factoring – also known as single invoice factoring – allows businesses to select one or more invoices at a time from their ledger and have their financier exclusively fund those alone.
This distinction doesn’t mean your business should expect a vastly different process with additional complications to other invoice finance services. Spot factoring operates in much the same way as most factoring arrangements: a business raises its chosen invoice(s) to their financier as soon as they’ve been received, the financier verifies these invoice(s) and provides high proportion of their value in advance, and then they’ll chase the customer’s payment on your behalf, making this balance available to you sans any pre-agreed fees.
Some of the immediate perks that come with embarking upon a spot factoring arrangement may have become apparent in the previous section of this guide, but other benefits aren’t necessarily so obvious and certainly warrant your consideration as well. We’ve compiled below a list of the key strengths that spot factoring holds – particularly its flexibility, when contrasted with other invoice finance facilities currently available.
- Flexible arrangements, manageable costs – Many invoice finance arrangements require the participating business to agree a fixed period of time from a few months to several years with their funder, but spot factoring enables firms to avoid these potential long-term contracts and the annual fees that can occasionally come with them. The facility will instead entail your business raising one or more chosen invoices as and when they choose, thereby alleviating any concerns about their lessened need for cashflow support / potential wastage of funds at certain times of the year.
- Multiple funding arrangements – By no means must a single invoice factoring arrangement eradicate your other current funding lines or risk contractual conflicts; quite to the contrary, the facility can often easily work in tandem with alternative cashflow solutions such as trade finance to support your business in overcoming any obstacles to generating working capital.
- Credit control and ratings – Spot factoring carries a strong benefit for SMEs and other firms still working on building their credit ratings, since financiers will focus moreso on their customers’ creditworthiness than that of the business receiving funding when making a decision on whether to offer this facility.
How Single Invoice Factoring Can Help Your Business
Here are a few key examples of case scenarios wherein making use of a spot factoring arrangement could alleviate common business problems:
- Prepare for seasonal demand – The ability to access flexible funding via a spot factoring facility often proves especially attractive to firms whose peak levels of demand come during specific seasons or periodic events.. Rather than needing to supply a financier with invoices throughout the year and receive a constant line of funding at times when your business mightn’t need it, through spot factoring your firm can simply submit invoices raised as and when peak seasonal demand necessitates greater cashflow support.
- Specific or One-off Project Finance – If you’re a company aiming to implement a recruitment growth campaign geared around filling skills shortages in your company infrastructure, spot factoring could allow your business to run an initiative without the fear of late payments or a contract needlessly continuing once the campaign reaches its natural end. Whether your projects are monthly or yearly, utilizing a single invoice factoring facility means that you’ll only ever need submit as many invoices as necessary to fund this.
- A fair trade – As discussed earlier in this article, many businesses will often combine the benefits of a spot factoring arrangement with those of their other funding facilities currently in place. For instance, if you are a wholesale business with a reliance on international clients, already operating a trade or export finance facility, then spot factoring could let you simultaneously concentrate on receiving advances from a specific set of domestic customers who’ve yet to provide payments, in order to support the performance of your entire trading cycle.
- Expand into new markets – Why not make this the quarter wherein your business takes advantage of the vast opportunities on offer in the UK exporting market? City A.M. has recently reported that the level of goods exported abroad from British waters will rise by 10% to the sum of £639bn this year, the fastest such hike since 2011. If late payments from customers have previously held your business back from expanding into this thriving market, then pursuing a single invoice factoring facility could very well mark the breakthrough moment to cast these concerns aside and seize international success.
Find out more
Should you desire additional information on spot factoring and how this increasingly popular cashflow support mechanism can help secure your firm’s finances going forward, then be sure to consult our dedicated product page here. You’ll also find further details on the various ways in which Touch Financial can assist you in selling invoices for cash here.
Above all, if any queries arise from this blog post or our product pages, then get in touch today and one of our expert consultants will gladly discuss these with you.