Spot factoring is an effective way for a business to obtain an immediate cash flow by selling outstanding invoices to a finance company whenever required. It helps a company to release cash quickly from unpaid invoices. There are too many spot factoring companies available in the market, but not all of them are treatable. One should choose a reliable confidential invoice discounting solution to maintain their own credit control processes.
Depending on the situation, level of control, and reliability one should choose invoice finance.
Here are some of the significant advantages of invoice discounting –
- Quick-release funding: In this process, the factoring companies can unlock funds tied up in unpaid invoices so that a business can receive funds without waiting for the customer payment. The factoring companies also provide the management of credit control.
- Cost-effectiveness: The invoice factoring process makes cash management easier for the business to receive funds while waiting for the customer payment. It means a business owner needs not chase the customers to the payment of the invoice.
- Flexibility: The main benefit of spot factoring is the flexibility at the time of drawing down the fund for operational expenses. This type of flexibility makes sure that a business is no longer restricted with longer-term business loans.
How does it work?
- The first step will be the selection of the invoices that one wants to factor. Whether it’s an individual invoice or multiple invoices, both are applicable in this case.
- The funders provide their clients with an agreed cash advance that can be up to 100% of the value of the invoices selected.
- At this stage when the customer makes the payment the finance collects the payment and offsets against the outstanding advance amounts added with the fees. If there is any remaining balance after the settlement it will be returned to the business.
Things to consider before hiring a funding solution –
- Make sure the funding company has enough industry knowledge and experience in the field. Only experienced factoring companies can provide the best service making sure that business is getting the best resource possible.
- The spot factoring companies have the ability to fund the necessary transaction size and support the growth plans. The amount of credit facility is an important factor to consider in advance.
- In case a customer needs to get in touch with the management, how quickly can they respond? Make sure the finance company is providing the best customer service and immediacy.
There are several factoring companies that put their customers in a long-term contract whereby all of their sales ledgers should be funded through the factoring facility. Not all the factoring facilities are suitable for businesses and there are often several limits on invoices due to foreign customers for export activity. These companies will require security to set up a new facility with a business client. So make the choice wisely after knowing all the terms and conditions.