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Stories Tagged ‘Spot Factoring’

Construction factoring is a topic that we have covered several times on this forum.

It is a sector that struggles to find suitable forms of working capital finance as banks are reluctant to offer overdraft facilities and invoice finance companies are uncomfortable with the risks associated with the construction industry.

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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.

Selective factoring was recently set up by Smart Factoring Quotes for a security company based just outside Chester in the North West of England. They had landed a large contract worth over £400,000 over 3 months. They had to invoice monthly on 90 day terms and yet they were paying their security staff weekly.

They approached with a view to spot factoring the 3 individual invoices. We looked at their options and found that selective factoring was by far and away a cheaper option. Selective factoring means that you factor all the invoices of a particular debtor whereas spot factoring means you can pick and choose individual invoices. The difference in this instance is subtle but the difference in cost was dramatic.

Selective factoring worked out almost 10 times cheaper in this instance. The facility will allow our client to take on a lucrative contract and meet it’s weekly wage demands. Profits will be increased because of the selective factoring facility.

Selective factoring allows you to choose which invoices you factor. This means that you can turn selective factoring on an off as required.

If you have a sporadic requirement for working capital selective factoring can be a cost effective solution for your business.

How does selective factoring work?

  • Selective factoring allows you to notify a single invoice or a batch of invoices to be financed.
  • The selective factoring company will conduct some due diligence.
  • Once they are happy to deal with you you sell them the invoices.
  • The selective factoring company will check that your customers are happy with the products or services you have delivered.
  • They will advise your customers that the invoices have been purchased.
  • You are provided funding by the selective factoring company.
  • On the due date the customer pays the selective factoring company.

If you require selective factoring please contact Smart Factoring Quotes.

Single invoice factoring, often called spot factoring, is available via Smart Factoring Quotes.

If you are looking to factor a single invoice or a batch of invoices this is possible. Traditional factoring and invoice discounting facilities typically require a lengthy contract that will attract a service fee whether you use the facility or not.  Spot factoring attracts a simple charge which is a small percentage of each invoice and you can pick and choose when to use the service and which invoices you finance. The big advantage compared to traditional invoice finance facilities is the flexibility – you can access cash when you need it rather than being tied in to lengthy contracts that require every invoice to be notified.

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