Invoice factoring is a useful tool in a small company’s arsenal. Solving cash flow problems is always a major headache. If a big client doesn’t pay on time, it can be hard work chasing them up and persuading them to hand over the cash. In the meantime, you have operating expenses, staff to pay, and HMRC deadlines to meet.

Spot factoring is a type of invoice factoring that can suit small businesses very well. In this post, we are going to discuss what it is and how it can help you. 

What is Invoice Factoring?

Many businesses use invoice factoring to boost their cash flow. Invoice factoring companies run your sales ledger department. When you send an invoice to the client, you forward a copy to the invoice factoring company, along with any relevant timesheets. They release the invoiced amount, minus a fee, and you can get on with running the business. It is the invoice factoring company’s headache when the client doesn’t pay on time, not yours. 

Invoice factoring is typically used to generate money quickly, which can be used for any purpose. Money is usually released within 24 hours, so if you have a cash flow problem, the money can be in your account far more quickly than it would be if you applied for a business loan. 

How is Spot Factoring Different?

Spot factoring is a type of invoice factoring. Instead of letting the invoice factoring company run your sales ledger department, you only release the cash from select invoices. This is ideal if the majority of your clients pay on time, but you have a problem with one or two tardy clients, or you need a swift cash flow injection to deal with an unexpected expense. 

The Benefits of Spot Factoring

Small businesses and startups find spot factoring very useful. It is ideal if you need short-term borrowing, but you don’t want the headache of applying for a business loan or looking for an investor. Spot factoring is very flexible, so you can use it to release cash as and when you need it most. 

Most business borrowing is dependent on the business having a good credit history. This is a problem for startups and businesses with a patchy credit record, but you don’t need to worry about your credit history if you use spot factoring. Invoice factoring companies don’t look at your credit history; they look at the client’s credit history instead. As long as your client has a good credit record, their invoice is suitable for spot factoring. 

For businesses with high-value invoices, spot factoring has many advantages. You can stay in control of your credit control department and maintain good relationships with your clients. It is a cost-effective way to release working capital when you need it the most. 

The Benefits of Standard Factoring

Standard invoice factoring is more suitable for businesses that have a lot of money tied up in unpaid invoices. In many industries, it is common for large companies to delay paying invoices as a matter of course. This makes their balance sheet look better for stakeholders, but it can have a devastating effect on a small business’s cash flow. 

If your clients are slow payers, it is worth using a factoring company to run your sales ledger. This releases you from the hassle of managing the sales ledger and you can have the cash up-front. However, working with an invoice factoring company on this basis normally requires signing a contract, and it’s only suitable for high-value invoices.

Speak to us today to learn more about invoice factoring and whether it is right for your company.

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