Hear at Simply Factoring Brokers we attract between 2/3 new enquiries every day and these enquiries can be a mix, from a $50 Million turnover business looking to change their current Invoice Discounting provider to a smaller business looking at their Factoring options. Wondering if they should take out a Spot Factoring service or a normal Factoring facility. We are always looking to help businesses make smart choices out of the facts given to them, so we are going to cover this topic in our Blog and although this Blog isn't going to make us very popular with some of our funders we hope you will find this useful.
Because we are a factoring brokerage we have funding lines with every major Invoice Finance provider you could think of, from multinational firms to smaller independent funders. So for this reason I think we are more than qualified to pass an opinion on this.
For those of you reading this who are looking at their options and wondering what spot factoring is let me take a moment to explain. Spot Factoring is an Invoice Finance product that will release funds against one invoice and not tie you into any long term contracts. So for example if you run a commercial cleaning company and you have an invoice for a nursing home of $100K and you only need money for this stand alone invoice then this facility would be perfect for you.
The difference between normal factoring and spot factoring is spot factoring does exactly what is says, it will spot finance what invoices you choose. If you want a factoring facility then a facility like this would look at your company as a whole and make funds available from all of your commercial invoices instead of the odd one you want funds against.
From reading the above I can hear you saying, well Spot Factoring is the product for me, it puts me in control. On the above information alone you would be right however a Spot facility can work out to be very costly, most spot factoring companies offer a tiered pricing structure (prices depend from funder to funder) but please find an example of pricing below;
1 - 15 Days - 3%
16 - 30 Days - 5%
31 - 45 Days - 6.5%
46 Days + 8%
I would like to point out that the above is an example but the fees mentioned above are there, or there about on what most funders pricing structures would be. So this $100K invoice that you have just got spot financed, and they pay you in 35 days for example would have just cost you $6,500. So as you can see although this facility gives you a little more control but that control does come at a price. If you had an Invoice Finance facility on your whole company turnover the price for this would be around 2-2.5% all in. It is difficult to pigeonhole what the overall costs would be, but 2ish% would be about right. So if you have a company that has a turnover of $1 Million and you spot finance $300K of that throughout the year and your customer pays in 35 days on average that facility would cost you $19,500, whereas a normal facility would cost you $20K and give you allot more bang for your buck.
We hope this blog has been of use to you and we hope that this has helped you make an informed decision. If there is anything you think we could help with please don't hesitate to get in touch.