When Spot Factoring Can Help Businesses

avoiddebtBusiness can indeed lead to success and with that comes sales, profitability and the fine things in life. But with gain, comes pain, as they say, or at least challenges that need to be worked around. Financing is perhaps one of the more demanding and tricky aspects of any entrepreneurial venture. Money is always a sensitive topic and it’s one that requires a great degree of care and caution. Owners need to identify methods that satisfy their needs and those that will fit certain scenarios. Then enters spot factoring.

Known as a type of funding that falls under the receivables financing category, spot factoring makes use of a specifically chosen sales receivable as a means from which cash is advanced. In exchange for the right to collect against it, the business shall receive its value prior to its maturity or in other words receives cash from a provider who in turn shall gain the rights and the responsibility to collect from the owing customer.

But when is factoring necessary? What instances does it help businesses most? We give you a rundown.

  • Collection Haste

When businesses want to hasten the collection and cash realization for a specific invoice, say because of its significant value which can be used for a particular venture or project, the method becomes the perfect solution.

  • Emergency Situations

Because it’s relatively quick to process and most providers can release cash in a matter of twenty-four hours, single invoice factoring is also a great alternative to consider when in need of funds for emergency and immediate disbursements.

  • Liquidity Setbacks

Since receivables have a way of locking up cash within invoices for prolonged periods or up to their maturities, this can take its toll in terms of liquidity or the state of having enough assets that can readily be turned to and/or used as cash. Because it is relatively quick and turns receivables to currency prior to their maturity, the method helps improve liquidity and working capital in the process.

  • Debt Avoidance

Spot factoring is no loan. Despite being a financing option, it creates no amount of liabilities and interest. It doesn’t even come with nor require any form of collateral. In the company’s books, it is reflected as a decrease in receivables coupled by an increase in cash and an increase to an expense that pertains to the fee apid to the provider.

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