As the name implies, with single invoice factoring — often called spot factoring –you are only factoring one invoice rather than multiple invoices at once.
So, you choose which invoices you want to sell and you sell them to the factoring company, which keeps a small service fee.
The biggest advantage of spot factoring is the flexibility it offers. Traditional factoring will usually involve a contract or a minimum number of invoices to factor. With spot factoring, you can choose the invoices you need to sell only when you need cash.
How does spot factoring work?
Aside from selling only a single invoice, spot factoring works the same as traditional factoring. You sell an invoice to the factoring company at a discount, which provides you with that cash immediately. The factoring company then collects on the invoice in full and forwards you the balance owing, less their service fee.
Criteria For Spot Factoring
Spot factoring is available to most businesses that conduct business to business (B2B) sales using credit. A business that won’t be able to necessarily do traditional factoring may be able to spot factor. You can spot factor, even if:
- you are a startup;
- you are in the construction sector (an industry that generally cannot do traditional factoring);
- you have had recent credit issues.
The determining factor of whether you get approved for spot factoring is really on the financial strength of the customer you are billing. If the customer has good credit, the factoring company is more likely to purchase the invoice.
Credit Card Factoring
This term is a bit of a misnomer, because technically, credit card factoring isn’t even factoring at all. Rather, it is a cash advance that is secured by your business’ future credit card sales.
How does credit card factoring work?
If a factoring company offers merchant cash advances or credit card factoring, they will give you cash up front and then deduct a percentage of your credit card sales each day until the amount is fully paid
Benefits of Credit Card Factoring
The biggest benefit of credit card factoring is the speed and ease of it. Getting a loan from a bank is time consuming and you have myriad hoops to jump through. Credit card factoring can get you cash quickly, even if your credit isn’t the greatest. All the factoring company needs to see is that your business has the requisite amount of daily credit card transactions.
[Photo courtesy of photosteve101 on Flickr]