Spot factoring seems to be gaining popularity within the UK and is a fairly common procedure in the US. We are talking about factoring a single invoice as opposed to factoring whole turnover as you would with a traditional factoring facility.
Obviously if you have an ongoing requirement to factor each invoice or the majority of your invoices it makes sense to seek a suitable factoring facility.
However, if you are looking for a short term solution to a cash flow “hiccup” then spot factoring can be ideal. It means that you can factor a single invoice and once that is paid you have no contractual obligation. You can also revisit the “facility” further down the track if you have another invoice you wish to factor. In essence you can “dip in and out” as you need to.
This can be quite attractive to some businesses. So what are the down sides?
In short the interest rates can put some people off. Most lenders will quote a daily interest rate which sounds nominal. However, this can equate to an APR of circa 80%. But does this make it more expensive than traditional factoring?
Well the interest rate is 10 – 20 times more than what you will pay on a traditional factoring facility but your debt may only be outstanding for 30 days. Traditional factoring can attract minimum service fees and minimum contract periods which can mean if you have a genuine short term requirement traditional factoring can be expensive.
While rates for spot factoring may well be higher than the rates for whole turnover factoring, if you have a genuine short term requirement spot factoring will typically be your cheaper option in terms of pounds and pence!!
So is it the future? I am not sure but it is another valid solution for many businesses so it should be embraced.
If you are looking for the best invoice discounting rates it is well worth speaking to Smart Factoring Quotes. We monitor the market for the cheapest invoice discounting rates available at any one time.
At present we have several invoice discounting companies who are actively competing on price and claiming they will not be beaten on price. It is however imperative that any business owner looks beyond the headline rates and considers total costs when comparing facilities from an invoice discounting company. It is also important to remember that the lenders offering the best rates can be among the most risk averse and as such your facility may be structured in a more cautious way.
At Smart Factoring Quotes our approach is to explain the benefits and potential downside of any facility and along side this show the total annual costs involved. This will allow any business owner to consider which facility represents the best value. To me that is the most important factor – compare the benefits the facility offers against the costs and then establish which facility represents the best value to your business.
If you want a helping hand give us a shout!!
Interest rates in the form of the Bank of England base rate have remained unchanged at 0.5% for the last 17 months. These low base rates seem attractive to borrowers but are crippling savers who rely on the income their savings generate.
Will rates rise? I think the evidence overwhelmingly suggests that these ultra low rates are not sustainable and as such, yes rates will rise. In a poll of economists by Reuters (29 July) the conclusions were that interest rates would rise from April-June 2011. It was thought that they would rise to 1.5% be the end of 2011.
If you are a factoring client, how will the impact on your costs? Well in some cases it will obviously increase your costs of borrowing money as your discounting fee is made up of a margin and a base rate. As the base rate rises then your costs would increase surely? The answer is maybe. It will differ from lender to lender.
HSBC invoice finance for example have no minimum base rate so any increase from the 0.5% Bank of England base rate will be felt by their clients who are currently enjoying these very low rates.
However, Bibby Financial Services are currently using 3 month LIBOR as a base rate and in the quotations I have seen are using a minimum base rate of 3%. This means that until the base rate (3 month LIBOR in this instance) increases above 3% their clients will not be effected by the potential base increases.
Close Invoice Finance use 1 month LIBOR as a base rate but have an overall minimum discounting fee of 4.5% . So any base rate increases would only impact on the clients of Close Invoice Finance if their total discounting fee increases above 4.5%.
Looking at the invoice finance market in it’s entirety there are a lot of clients who won’t feel the impact of any impending rate increases for some time.
Is this good news? It depends on how you view matters but some may argue that the ones who will not feel the effect of the increases are paying too much at the moment anyway. Then again, you can only choose the best of the offers that are made available to you.