If you have a business emergency or if you want to put money into a potentially high-profit investment, it makes sense to use your commercial capital. But if the money isn’t readily available, there’s still a way for you to get it right away hassle-free. You can do this through spot factoring.
How It Spot Factoring Works
First, you need to choose an invoice that you’re going to issue to a customer and then find a factoring company that offers spot factoring. As soon as they verify the invoice, they can then provide the emergency funds you require.
You then invoice your customer like you normally would. But this time, you just add a notice of assignment to the invoice. This will state that the customer should give the payment to the factoring company instead of paying you. You then send the factoring company a copy of the invoice, along with an acknowledgement of the debt or a delivery note. In return, they will transfer a certain value (anywhere from 70 to 85%) of the invoice. Once the customer makes the payment later on, the factoring provider gives you the rest of the value of the invoice minus their fees.
Spot factoring is a bit different from the regular form of factoring that most factoring companies offer. So if you are familiar with the traditional factoring methods, with spot factoring you need to be aware of certain differences. They are as follows:
- It’s essentially a “one and done” deal. For traditional factoring, usually the factoring company advances the money for several of your top invoices, or sometimes even all of your invoices. With spot factoring, even just a single invoice may be required and there’s no contract required. In traditional factoring, often there’s a contract that covers a longer period of time. This usually lasts for half a year up to a year and a half.
- Not every factoring company offers this service. Most factoring companies prefer regular customers—in this sense they’re just like every other business. So if you want to make use of spot factoring services, you may have very few options.
- In general, spot factoring is much more expensive. This is understandable, since you need to cover the cost of the credit checks and background searches, and they can’t be spread over a lengthy contract.
Getting commercial capital quickly and conveniently is the very essence of factoring. With spot factoring, everything’s stripped down to the basic concept of using invoices as collateral for cash advances. It’s for a single invoice and you get your money quickly and use it for whatever purpose.
The important thing to keep in mind is that you need to find the right company that offers spot factoring services. That way, you will be assured of a fair business transaction. For more information about spot factoring services, check out www.neebocapital.com.