Posts tagged: factoring companies

Spot Factoring, Its Uses and Why It Works

spot-factoringSpot factoring may sound new to most ears especially if you’re not in the filed of business but this tried and tested method has long been praised for its ability to raise needed financing without the usual struggles brought about by other alternatives in the market.

By definition, it refers to a type of funding method that allows business entities to derive their needed cash from a carefully chosen trade receivable or customer invoice. The name spot pertains to the singular transaction as only one invoice will be subjected to the arrangement. It works under the premise that while a receivable is essentially an asset, it locks up cash for a significant period of time making them unavailable for immediate use until its maturity and after collection from the owing customer.

Moreover, it involves the sale of an asset. In this case, that would be the invoice. The business, in exchange for the advance of around 80% to 95% of the total value, shall sell to the financial institution the rights to collection with the remaining balance to be received less fees after full payment collection has been achieved by the said provider at maturity date.

Spot factoring can be used in many situations. For one, there’s emergency or immediate expenditures. Since this type of funding is easy to acquire with less paperwork needed and even a 24 hours processing to cash out time, it’s perfect for when one needs resources fast. An example is when vendors and suppliers have to be paid but cash is a little short or for opportunities that have not been forecasted but would prove extremely beneficial if taken. It can also be utilized for the usual needs and operations as it releases the cash from the invoices and thereby strengthens working capital and liquidity in the process.

That said, it is also used to significantly improve cash flows making it a good method to use for entities whose outflows tower over its inflows. This helps create a better receivables turnover as it helps in decreasing receivables and increasing cash at the same time with no effect on liabilities because it isn’t one. This means it only comes with a onetime fixed fee, no interests or collateral requirements and will not in any way affect the entity’s credit score and history. This makes spot factoring available not only to established businesses but also to startups and small to medium scale enterprises. Even recovering entities!

UK Invoice Factoring Companies: What Options Do I have?

When it comes to financing through your receivables, UK invoice factoring companies say that you have quite a number of options to choose from, each one having certain uniqueness to their own. If you want to benefit from the numerous advantages of factoring then you better decide which type you’d like to use. These four are namely traditional, spot, with recourse and non recourse. Although these four have some minor tweaks to differentiate them, they still work pretty much similarly as they will get you an advance for selling the right to collect against the debt of your customers. Without further ado, let’s discuss your four options.

factoring companiesTraditional or Whole Turnover

This requires you to sell your entire sales ledger. Yes, all of it; every single one. This type is particularly beneficial to those who often see themselves subjecting their invoices to a factor on a repetitive and regular basis. Rather than paying a fee for each one, why not do it in bulk? Furthermore, this is good for those whose receivables are often long and will take time before enough cash is freed up for corporate use.

Spot or Single

If however there are only a few or some notable receivables that you would want to hasten up, then spot factoring is for you. In this arrangement you do not have to sell your entire sales ledger. You will have all the liberty in the world to choose what receivable to advance, when to subject it to a financing institution and how often you’d like or need to do it. The fee in this case is not for a monthly basis but will only involve the invoice involved.

With Recourse or Fund Limit

There are instances when the financing firm will offer an arrangement that frees them from incurring large amounts of losses for buying your receivables which your customers fail to pay. This arrangement is called with recourse. Here, you will be required to buy back the invoices that have not been paid in full. That is if there are any. Because of this clause, this arrangement comes with a fee that is far lesser than the others. It is quite cheap to be frank. When should you use it? A company with customers who possess good credits score and credit history will benefit most.

Non Recourse

In the event that you unfortunately suffer from bad debts and uncollectible accounts, UK invoice factoring companies suggest that you get a non recourse option. Here, all risks are passed on to the financing institution. Whether or not your customer pays, you get the advance and you won’t have to buy back any unpaid dues.

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