If your business faces troubles due to delayed payments, spot factoring is a great way to solve this problem. This is a great financing plan that allows you to receive a larger percentage of your invoices upfront within 24 hours for a small fee.
The process in a nutshell
This method introduces a third party company to a business relationship that exists between a buyer and a supplier. If you have supplied the goods and the buyer delays payments, you can sell your invoice to the company and receive about 80% of the cash your invoice holds.
As a result you’ll receive cash to sustain your work until your buyer pays. When he pays he has to pay for the company and the company will reduce their service fees from it and release you the remaining sum. However if the customer doesn’t pay some companies will ask you for a refund and some will not.
Major facts to consider when choosing a factoring company
Although it looks like a great solution to all your cash squeezes however there are many facts to consider when you pick a factoring company like the advance rate they offer, their service fee, document fees etc. The advance rate is the amount the company is willing to pay you and its most of the time expressed in the form of a percentage within a range of 70% to 90%.
Advantages and disadvantages involved.
It’s one of the best way to ease your cash squeezes within short durations like 24 hours. The next advantage is even if your business runs on bad credit you may still be allowed to obtain cash. It’s also a onetime short contract and once it’s over you can move on. You can also choose when you want to use it and there are no obligations involved.
There are disadvantages in this method too. It’s very expensive as it goes on a per invoice basis. And if your customers aren’t creditworthy you might not be able to qualify for this financial plan to gain any cash. And in order to obtain this you should have been in business for at least 6 months, so any recent businesses wouldn’t be able to qualify to receive any cash.