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If your company offers 30- to 60-day payment terms to customers but you need that cash now, spot factoring may be useful. Spot factoring is a way to get funds for your business in about a day if you have one-time payments or need to meet payroll.
Much like invoice factoring, spot factoring gives you money upfront from unpaid customer invoices — either a portion or single load — fast. Some companies can get you funds in as little as 24 hours.
When you need money quickly, spot factoring allows you to sell your unpaid invoices to a lender who gives you a percentage upfront. Unlike regular invoice factoring where you consistently borrow against your invoices, spot factoring is there only when you need it. It’s a source of funding to consider when you need quick access to cash when business is slow, you have unexpected growth opportunities or an emergency situations.
Companies that offer spot factoring verify each invoice you submit by considering the creditworthiness of the customer — not your business.
Once you agree on fees and terms, you’ll receive your funds between 80% and 90% of the total invoice amount. The spot factoring company will take over and provide debt collection services. Once the debt is paid, you’ll receive the remaining invoice amount, less any fees or charges.
Every factoring company is different, with different maximum lending amounts and fees. Consider these points when comparing factoring companies:
Spot factoring may be a useful solution for dealing with one-off invoices that are causing a cash flow problem, but they shouldn’t be used consistently. Instead, find an invoice factoring company that can handle large amounts of invoices at once. This allows you to build a relationship and save money on fees.
Because spot factoring can be expensive, pay attention to the fees. These can quickly add up. A cost-benefit analysis is useful to determine if selling an invoice will be a good solution for your company. If not, a short-term option like a business line of credit may be more useful.
If you’ve decided spot factoring isn’t right for your business but you still need financing, consider these top providers that offer term loans and lines of credit.
Spot factoring is an easy process that allows you to sell your invoices for immediate funding. Many spot factoring companies can have your funds ready within a few days, but the high fees make it costly to use regularly. If you’re looking for a more long-term solution, you should compare your other business loan options.
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