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text: What is spot factoring

What is Spot Factoring?

Spot Factoring is a way for businesses to obtain immediate cash flow by selling outstanding invoices to a financier as and when needed.  It is also known as Selective Invoice Discounting.

How does Spot Factoring work?

It happens in 3 easy steps.

1.  Your business submits and assigns the invoice (transfer of rights, title and interests in the invoice) to the financier who has provided the Spot Factoring facility.

2. Upon verification, funds of up to 90% of the invoice value will be advanced to your business account within 24 hours.

3. Once your customer pays the invoice (e.g. in 30, 60 days), the financier collects the payment and offsets it against the outstanding advance amount plus fees. Any balance after settlement will be returned to your business.

What are the benefits?

The main benefit of Spot Factoring is that it gives your business the most flexibility for when you want to draw down funds against your outstanding invoices.  Your business can unlock funds tied up in your accounts receivable in 24 hours without having to wait for the customer to pay in 30, 60 or 90 days.

This can help fund your operational expenses like salaries, tax obligations or inventory purchases whilst only paying interest on the short duration of say 30, 60, 90 days that it takes for the factored invoice to be paid. Settlement of the factored invoice can happen 2 ways:

  • Your customer (debtor) pays the factored invoice when due.
  • Your business may decide to ‘repurchase’ the invoice earlier prior to your customer paying to save on the interest.

Such flexibility means your business is no longer restricted with longer term business loans or be paying interest on a loan that is not fully utilised throughout its term.

Are there downsides to Spot Factoring?

Spot Factoring financiers usually charge a higher premium on a Spot Factoring facility when compared to other facilities due to its flexibility.

For new clients setting up the facility for the first time, it may take a week or two to get the facility ready to go due to the invoice assignment process.  Debtors who are larger organisations or government bodies would have the assignment process already streamlined which should quicken the process.

InvoiceInterchange offers Spot Factoring

At InvoiceInterchange, we offer Spot Factoring facilities to businesses who have invoices issued to large creditworthy end customers.  We use technology to make it quick and easy for you to access funds.  We provide you personalised service and work with you as a finance partner, getting you the funding you need so you can focus on getting on with and growing your business.

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