How Does Spot Factoring Work?
If you are familiar with traditional invoice factoring, the process to factor single invoices is very similar. As the factoring client, you apply for approval to factor the invoice, receive approval, submit the invoice and then receive working capital.
Because this is a single event, you won’t be required to sign a short or long term contract or commit to factoring minimums (minimum invoice amounts or minimum number of invoices per month). The process is very straightforward! Once approved:
- Day One – Factor the invoice and receive an advance of up to 93% of the face value of the invoice
- Day 30-45-60-90 ++ – Once the customer has paid the invoice, receive any reserve amount held back pending payment
Spot factoring could be especially advantageous to your business in the case where a customer has requested long payment terms. You can extend generous payment terms to your customer while still expediting cash flow for your business.
The single invoice factoring process might look like this, assuming an advance rate of 93% and a fee of 5%:
||Factor $8,000 invoice
Receive an advance of $7440
||Factoring company earns $400 fee
||Receive additional $160 held in reserve once the invoice has been paid in full
Working capital in hand, you are free to meet your organization’s financial obligations, make payroll, invest in future business, take advantage of suppliers’ early pay discounts, and more.