Good customer relations are the key to any business, so it’s important to keep your clients happy.
But what if an unexpected late payment by a usually reliable customer threatens your projected cash flow? Suddenly you can find yourself juggling those good relations with the need to get hard cash into your bank account.
This is where single invoice factoring can be a welcome solution. Also known as ‘spot’ factoring or single invoice finance, this allows you to raise money against one particular invoice or project without the need to commit to a complete factoring service. The practice, which is already common in America and is growing in popularity in the UK, therefore treads that fine line between keeping your customer satisfied and making sure your own business isn’t put at risk by one hiccup.
How does single invoice factoring work?
Single invoice finance helps your cash flow when you are waiting for an invoice to be paid or a specific project to be completed. You simply invoice your client as you usually would and forward their details to the factoring lender you’ve chosen. A good invoice factoring broker can help you find the right lender for your circumstances. The lender will then pay you the majority of the invoice value and, once the money has been collected, will pay you the remainder, minus their fee. You can either ask the factoring company to chase payment for you, or keep confidential the fact that you have outsourced the invoice. There are advantages to each; some clients might be unhappy with the idea that you have passed on their debt to a factoring firm, whilst others might be more inclined to pay up if a third party is involved.
Is my business suitable for single invoice finance?
Single invoice finance can be a useful tool for any business, but is particularly suited to those that rely heavily on one customer or are depending on a specific project to generate cash flow. It also works well for seasonal businesses, whose cash flow varies depending on the time of the year.
What are the pros and cons of spot factoring?
Single invoice factoring is very flexible. You don’t have to commit to a long-term factoring service and you can raise money against one or two invoices as and when you need to. You can use spot factoring alongside other credit options such as overdrafts and external investment, you are not ‘locked in’ and you won’t be charged an on-going fee.
Spot factoring probably isn’t for you if your client has a poor credit rating and not deemed likely to pay up. This is why it is particularly good for those occasions when a regular customer has a blip; you know their credit history and you trust that they intend to pay. For customers without a proven record, invoking late payment legislation might prove a more effective way of getting your money.
For more information about single invoice factoring or longer-term factoring options, call our friendly Simply Factoring Brokers team on 0330 134 2826.