Spot factoring could be the solution to unpaid invoices and cash flow problems. If you have a company that offers 30 to 60 day payment terms then this factoring can help bring the cash in readily. This is used if you need money for the payroll or need money to invest. This is very similar to invoice factoring besides you will be able to receive the money in less than 24 hours.
It is very simple how this works.
You will be able to sell your unpaid invoices to a lender who will give you a percentage upfront. Companies that offer spot factoring will verify each invoice received. They will want to ensure that you will be able to pay off the loan. They will check your credit to help them understand if you pay off your credit.
There are some things to compare when choosing a lender. The first is the advance rate, which is the percentage that they will pay for the invoice. A 70% advance rate means that they will lend 70% of your invoice. The second thing to consider is the service fee, this one time fee charged on every invoice submitted. The fee depends on the value of the invoice and the fee can range from 0.1% to 20%.
The third thing to look for is the discount rate that they offer. This fixed percentage rate changed monthly and can range from 1-10%. The fourth thing is the document fee, which are the initial setup costs. This will cover credit checks and the money can range from a few hundred to hundreds of thousands depending on your invoice. The last thing to check for is if there are hidden fees that you should be concerned about.
There are many benefits of spot factoring such as to ease your cash flow troubles. By being able to quickly access your funds will help pay payroll or other company needs. This is usually granted in less than 24 hours. The other thing is you can still qualify with bad credit. Although it may be more difficult to qualify there is still hope. The lender will look at your creditworthiness and make sure that you have tried to pay the other lenders.
There are also some negative aspects about this which include it being expensive. This is the usually the most expensive invoice factoring. The setup costs will increase for the factoring companies. The second thing is it depends on the credit of your debtor. This greatly depends on your creditworthiness and that your customers are paying the invoices. The last thing that is negative is you may have to repurchase your invoice. If the debtor can not pay you will most likely have to pay the invoice.
This type of factoring can be beneficial but it takes careful planning. You will want to ensure that you have the best credit possible. By having the creditworthiness it will make the lender feel more comfortable paying the invoices. This is great to do if you are late on payroll or need funds to further expand your business. You should never do this if you have no cashflow this lending is for those who have a setup that doesn’t allow the company to receive the funds for 30 to 60 days. However it can be initially expensive and have high fees. This type of factoring is great for those who need the money in less than 24 hours.