Why spot factoring works

spot factorWhat is spot factoring and how does it work? More importantly, why are more and more entities finding the need to use such method of financing? Let’s all find out.

First of all, what is it? Spot factoring falls under the category of receivables financing wherein a business entity makes use of a selected sales invoice from which to draw cash from. It is a sale transaction wherein the company sells its right to collect against it to a party called the factor in exchange for an advance of its value.

It is for the above reason as to why the method is an asset transaction thereby producing zero amount of debt. It doesn’t even have the effects and consequences of one. How is that possible?

In spot factoring, the business chooses a particular invoice. Oftentimes, it pertains to an account that has significant value and which can cater to the financial need of the entity. It is then sold to a factor who in turn gives about 80%-95% of its value. The remaining it shall retain and release only upon complete collection from the owing customer. The company shall then make use of the cash received whichever way it sees fit. Upon the invoice’s maturity, the factor shall then collect from the owing party and then release the remaining balance less fees to the company.

One very important reason as to why this method is preferred is because of its immediacy. Most if not all providers can arrange for the cash to be released in a matter of twenty four hours. This is not possible with other financing mediums. Furthermore, there are not as much frills and requirements to deal with making it less of a hassle.

Spot factoring also helps hasten collection and shift the burden. Apart from selling the rights to collection, the company also transfers the burdens thereof. If you remember, we mentioned that the collecting agent here is already the factor not the business. The entity shall no longer have to wait for the invoice’s maturity to receive the cash locked in them which spells good for liquidity, cash flow and working capital purposes.

Moreover, spot factoring can be used by everyone. Unlike bank loans and mortgages for example that are only available to established and heavily funded entities, the method is open to small to medium scale enterprises as well and even to startups and businesses in recovery. This is because the providers do not bank on the company’s creditworthiness but instead that of the customer’s.

The Export Overdraft Timeline

export overdraftThe export overdraft is a procedure designed to make overseas and international trade possible without the often present obstacles of meticulous documentation and financial risks that come with it. The said method benefits established companies, startups, small to medium scale enterprises and businesses in recovery.

The very charm of export overdraft lies in its ability to deter and minimize the risks involved with overseas trading. Businesses would of course want to expand their reach and take advantage of foreign markets but because of factors like credit, interest rate and currency risks and not to mention legislation and documentation, many entrepreneurs can feel intimidated.

Furthermore, the physical distance creates a huge lag in terms of payment collection. Remember that many buyers, especially importers, prefer to defer payment until the goods have been shipped and delivered or until they have been resold. This can create liquidity and cash flow problems for the company.

Lastly, international trade will require companies to open up and increase their administrative manpower and resources to man the operations at particular overseas sites. Laws, regulations, standards, duties, taxes, tariffs, language and culture will have to be considered too which requires a lot of work, time and money. Fortunately, all these can be fixed with the help of an export overdraft.

But how does such method work? To better explain, we’ve made a brief timeline on the basic procedures and processes involved in its use. Take a look.

Step 1: A factoring company is chosen and an application is made. Certain requirements will have to be produced depending on the mandates of the factor. Creditworthiness shall be checked as well.

Step 2: Upon approval, the goods for export are shipped to the importer. The provider shall also release the advance on the value of the sales invoice to the exporting entity.

Step 3: The factor shall take on the burden of collection and assume all other tasks related to it thus it shall provide for the assignment notice for the invoice. Such document is written in the importer’s language or in English, whichever is preferred and used for business transactions and documents in their country. All of this is done in compliance to the rules and legislation.

Step 4: Upon complete transfer of the goods, a proof of delivery is obtained. Assignment and verification checks shall likewise be done.

Step 5: Collection for payments is done in the importer’s currency but the advance provided to the business is in their country’s monetary denomination. This is one of the many benefits of export overdraft.

Mistakes in the Use of Single Invoice Discounting

single invoice financeSID, an acronym for Single Invoice Discounting, is a one-off transaction that involves the use of a particular and selected sales invoice to raise funds for commercial use. Many businesses make use of it given its numerous advantages, however, not everyone who does do it right. Today we shall discuss these blunders and hopefully help everyone avoid committing the said crimes.

But before we proceed, let’s get to know SID even more. Also known as Selective or Spot Invoice Discounting, it allows companies to advance the value of its sales invoice by up to a percentage majority of its value before the owing customer sends in payment. This happens almost instantaneously as many providers are able to release cash within twenty four hours at the least.

In such transaction, the company chooses the invoice and then uses it as collateral. The amount of the advance received shall depend on the value of the said invoice. The company then uses the funds as it pleases and then collects from the owing customer. Once collection is completed, the company has to repay the provider for the advance it has previously taken plus fees agreed upon at the onset of the transaction.

Now that we’ve got that covered, let’s proceed to the crimes committed against SID.

Mistake #1: Mistaking it for factoring. – Discounting and factoring are two distinct financing methods despite their very similar benefits. Factoring is a sale of the right to collect against the invoice with the collection burden shouldered by the provider and not the company.

Mistake #2: Contacting the wrong provider. – It is important to transact only with trusted SID companies to ensure that things go smooth and well. This necessitates ample research and going around to narrow down choices and then end up with the best.

Mistake #3: Failing to assess the invoice beforehand. – SID providers bank on customer instead of company creditworthiness. To cut the application time, make sure that you only use of credible and creditworthy customer sales invoices. This brings us to our next item.

Mistake #4: Don’t extend credit to everyone. – To make better value for your receivables, extend credit sales only to those who are capable of fulfilling their obligations. Screen your customers first before you allow them of deferred payment options. This benefits not only your Single Invoice Discounting transaction but your cash flows, receivables ageing and liquidity as a whole.

 See professional advice, visit http://workingcapitalpartners.co.uk.

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Improve Cash Flows with the Help of Factoring Companies

cash flowFactoring companies can surely help businesses with their cash flows dilemma. We’re not kidding. They really can and today we’ll help you get to know more about the services they offer and what makes them one of the business industry’s top financial sources!

Factoring is a type of financing wherein a company sells its right to collect against its accounts receivables or invoices to a third party at a discount in exchange for an advance of its value.

Because many businesses offer sales on credit, it cannot be denied that cash flow problems can occur if customers do not pay on time or at all. Even with penalties and interests, cash will still be locked up in invoices making them unavailable for use up until the customer pays them. Factoring fixes this.

What it does is that it allows the company to draw immediate funds from the invoices in even as fast as twenty for hours. The advance it is able to draw against the provider is equal to a majority percentage of their total value, often ranging from eighty to ninety five percent, with the remaining balance forwarded and discounted of the fees after the factoring facility has fully collected from the owing customer.

Its charm lies in the fact that it does not create a loan unlike other financing methods. The company in essences sells its asset as it gives the right to collect against such invoices at a future date. Because of this, liabilities remain the same and only the asset side of one’s balance sheet is affected. A rise in cash occurs alongside a decrease in trade receivables. As mentioned earlier, it is a sale of an asset which is your receivables and not a debt.

It is also immediate in nature and is not coupled by the same long and meticulous application process involved in bank loans, mortgages and similar other forms of finance. This makes it a good source of immediate financial resources allowing a quick injection of cash into the system. Because of this, working capital is strengthened and cash flows are improved.

Moreover, factoring companies can help businesses improve their collection function. With the sale of the invoices comes the responsibility of payment collection. The factor now has that burden and therefore relives it from the company. These facilities are known to have well developed protocols and programs to improve such function so businesses are rest assured that customers are dealt with accordingly, in schedule and appropriately.

Export Finance Pros and Cons

Have you heard about export finance? Not yet? Well then, allow us to introduce it to you along with its slew of pros and cons.

First of all export finance is a means by which companies trade and sell their goods abroad with the help of a financial provider who in turn facilitates collection, customer credit screening and other relevant documents to facilitate the transactions.

We all know that many business entities feel intimidated and apprehensive about taking a leap or pushing forward to the next step in their ventures due to the risks that they could potentially face and the burdensome task that may or may not turn into actual profits. Furthermore, foreign buyers much like their domestic counterparts prefer to delay their payments up until they receive, make use and/or sell the products. This puts potential exporters at a disadvantage. To fix the dilemma and the choke point, export finance comes into the picture.

There are many benefits that export financing can provide companies. Let’s name some of them.

First, it allows entities to take their business to the next level. Domestic sales are great but who would not want to grow internationally too? Who doesn’t want to expand? All entrepreneurs want growth and expansion and export is one way to achieve this.

Second, credit screening of customers from foreign countries can prove to be very challenging given the distance. Even in today’s digital world, there will still remain a time lag. Plus, one can never be fully aware of the various credit regulations on a specific country. An export finance provider takes care of this task and does the screening for you to only extend credit sales to creditworthy clients.

Third, it helps maximize sales potential. By going abroad, one branches out their market creating more potential for sales and profits. After all, you can never gain a loyal following if people are not aware of your presence.

export-finance2Fourth, services such as export factoring and discounting can help hasten up collections even more and bring in cash to companies equivalent to their credit sales even if foreign customers have not paid their invoices yet.

Now as for the disadvantages, there are a relative few. Export finance may not be suitable for companies that does not have a strong potential for export trade. First of all, it would be irrelevant. This is why careful deliberation must first be done when planning about financing methods.

Learn more on export financing here http://workingcapitalpartners.co.uk.

 

Have you heard about export finance? Not yet? Well then, allow us to introduce it to you along with its slew of pros and cons.

First of all export finance is a means by which companies trade and sell their goods abroad with the help of a financial provider who in turn facilitates collection, customer credit screening and other relevant documents to facilitate the transactions.

We all know that many business entities feel intimidated and apprehensive about taking a leap or pushing forward to the next step in their ventures due to the risks that they could potentially face and the burdensome task that may or may not turn into actual profits. Furthermore, foreign buyers much like their domestic counterparts prefer to delay their payments up until they receive, make use and/or sell the products. This puts potential exporters at a disadvantage. To fix the dilemma and the choke point, export finance comes into the picture.

There are many benefits that export financing can provide companies. Let’s name some of them.

First, it allows entities to take their business to the next level. Domestic sales are great but who would not want to grow internationally too? Who doesn’t want to expand? All entrepreneurs want growth and expansion and export is one way to achieve this.

Second, credit screening of customers from foreign countries can prove to be very challenging given the distance. Even in today’s digital world, there will still remain a time lag. Plus, one can never be fully aware of the various credit regulations on a specific country. An export finance provider takes care of this task and does the screening for you to only extend credit sales to creditworthy clients.

Third, it helps maximize sales potential. By going abroad, one branches out their market creating more potential for sales and profits. After all, you can never gain a loyal following if people are not aware of your presence.

Fourth, services such as export factoring and discounting can help hasten up collections even more and bring in cash to companies equivalent to their credit sales even if foreign customers have not paid their invoices yet.

Now as for the disadvantages, there are a relative few. Export finance may not be suitable for companies that are does not have a strong potential for export trade. First of all, it would be irrelevant. This is why careful deliberation must first be done when planning about financing methods.

A Step by Step Guide to Invoice Financing

steps for invoice financingInvoice financing has fast become one of the most popular and in demand ways of raising the needed resources or capital among entrepreneurs today. It’s charm lies in the truth that it does not create the same consequences as that of bank loans and other forms of credit. As a matter of fact, it does not appear as a liability in one’s financial statements either. So exactly how does invoice financing work? Read on to find out.

Per definition, single invoice financing is a form of short term borrowing that allows an entity to draw cash against its sales invoices before the customer has sent in partial or full payment. Let’s take it step by step.

  • First, the entity chooses which invoices it will subject to the financing and when. The company will have to decide whether it prefers complete or single invoice finance. In the case of the former, all customer receivables will be subjected to the service for every period, often on a monthly basis, for a specific period of time. The latter on the other hand is individual in nature so the company gets to handpick which invoice it would like to use as well as how often they would like to do so. The choice is often directed to those receivables that have significant values or those that pose threats of un-collection.
  • Second, it sells the right to collect against the chosen invoices to the provider. The reason why this financing method does not fall under the category of a debt is because it is in fact a sale of an asset. The right to collect is passed on from the company to the financial provider. The latter provides an amount that is at least eighty percent equivalent to the value of the invoice/s with the balance to be forwarded after full collection from customers is achieved.
  • Third, collection is performed by the provider and the company uses the funds as deemed necessary. The financial provider now bears the responsibility of collection. In some agreements should a customer default in payment, the loss is borne by the financing company. This allows for reduction in losses from bad debts.
  • Fourth, once collection is completed the balance is then forwarded. After collection from customers, the invoice financing company will now forward the remaining balance less fees to the company.


Do you need invoice financing? Visit workingcapitalpartners.co.uk

Dos and Don’ts When Working with Factoring Companies

factoring-companiesFactoring companies offer invoice financing services that allows business entities to raise funds and capital through their customer receivables. In such an arrangement, the company advances an amount equivalent to around eighty to ninety percent of the value of their chosen invoices with the balance less fees forwarded only upon full payment is received from owing customers. The burden of collection will also be transferred to the factor.

There are benefits to this type of financing that has made it one of the most widely used in the business world today but just like anything else using them in the wrong ways will earn you a migraine. This is what makes it important for business owners and entrepreneurs to get to know the service more. To help you with that, we’ve come up with a list of do’s and don’ts when working with factoring companies.

Do your research well. There are many factoring companies out there so it is you job to find who they are and get to know them better. No two are exactly the same so be sure to research well. Make a list, compare them to your qualifications and short list your candidates.

Do read client reviews and feedback. To know about how quality driven they are, it is best to ask people who have experienced their services firsthand. You can do this in many ways from reading forums and blogs to calling up people personally.

Do understand every clause and sentence you are agreeing to. Again, no two factoring company is the same. They will have varying clauses to their terms and conditions and different processes. Before you sign into any agreement or contract, be sure that you understand every word there is to it.

Don’t settle for lackluster quality. If you want to make the most out of your invoice receivables then do not settle for less. Always go for gold.

Don’t go for the cheapest rate in a heartbeat. Entrepreneurs want to be cost efficient but do not let quality suffer. Just because a certain factor offers very cheap and rock bottom rates do not mean that you have to settle with them. There are other factors to consider and not just price.

Don’t use factoring without knowing what it is. If there are things that confuse you about the financing method, go ahead and ask the factoring companies you are dealing with. They will most willingly love to enlighten you and keep your facts straight.

Working Capital Partners: Discounting Versus Factoring

invoice discountingIn the world of invoice financing, many people find discounting and factoring confusing. Others say that they are one and the same while there are those that insist their huge difference. If you find yourself in the same state of bewilderment then you are in luck as Working Capital Partners is here to clarify the matter for us.

First things first, let us define what invoice financing is all about. As per definition, it is a type of short term borrowing that allows a business to draw cash against its customer sales invoices before the said customer has turned in their payment. In many cases it is used to improve a company’s working capital and cash flow, provide for emergency expenditures and to hasten collections.

What makes it different for regular forms of borrowing is the fact that it does not require collateral in the form of fixed corporate assets. It can also be processed in a matter of days or even in as fast as twenty four hours. Moreover, it does not appear as a liability in the financial statements but rather a decrease in receivables and an increase in cash. It also frees up the amounts locked in within the invoices relatively earlier than when it should have been, that is at the date of customer payment.

To answer your dilemma about factoring and discounting, the two are alike in two areas. First, both create and bring up the same benefits and advantages. This includes an improved cash flow, available resources, hastened receivable to cash turnover and lesser bad debts to name a few. Second, they both provide for an advance of the value of the invoice/s subjected to them. As for their differences, read on below.

In factoring, the company brings their receivables to the financial provider who in turn provides for the advance which is an equivalent of eighty percent or higher of the invoice’s value. The same provider carries on the task of payment collection from the customers. Once that has been achieved in full, the remaining percent less fees will be forwarded to the company.

On the other hand, discounting still provides for the same advance however the responsibility regarding collection remains with the company. Once collection has been completed, the company then comes back to the financial provider to repay them plus the fees.

Hopefully, the Working Capital Partners have helped clarify things for you after reading through this article.

Working Capital Partners on What is Receivables Financing

Receivables financing is one method used by a number of companies around the globe in order to draw out their needed funds. As its name suggests, the cash is driven from the entity’s own receivables. To some, this may still sound foreign but it has in fact already existed for years now. But what is it really and how does it work? Working Capital Partners is here to explain to us exactly that.

In receivables financing, companies actually hasten up the conversion or recognition of cash. Sales happen on credit and with this come the presence of customer invoices. It could however take time before cash is actually received as payment can come in periodical installments. Such funds may be needed by the entity for various reasons; funding operational expenses would be one. To do this they choose among two options: factoring or discounting.

With factoring, they sell the right to collect against the said invoices to a financial institution called a factor that in turn provides them with up to ninety five percent of the value of the customer invoices. The same proceeds to collect from the owing customers and once such has been completed they then will give the remaining five percent balance less any pre-agreed fees.

On the other hand, discounting is more akin to a loan only without interests and debts. What happens is the company uses the said invoices as collateral getting their value in advance from the financing institution. The company still proceeds in collecting from its owing customers and once this has been completed, they will then repay the financial institution plus nay pre-agreed fees.

To put it simply, it hastens and cuts short the turnover from receivables to cash. Receivables financing, both factoring and discounting also produces the same effects and benefits, to wit:

  1. receivables-financingIt improves the entity’s cash flows thereby moving hand in hand with sales.
  2. It is fairly quick to use for as fast as twenty four hours and does not require the entity to provide financial statements or show their credit history and rate.
  3. Locked up cash is freed and made accessible and available for use especially for emergency cases.
  4. It does not affect the liabilities portion of the financial statements but rather only cause a decrease in trade receivables coupled with an equal increase in cash.

Thanks to Working Capital Partners, all these have been laid out clearly. So what are you planning to use? Factoring, discounting or both?

Factoring Companies and How they Work Magic

Maybe you have heard about Factoring or maybe you haven’t. Either way, you better read up and get to know more about it. Who knows, it might just be the solution that you have been looking for to better your company’s operations. Okay, so let’s get started and discover how Invoice Factoring companies work their magic to help businesses, small and big alike.

But first, what is factoring? It is a kind of receivables financing method apart from discounting that seeks to derive funds from the company’s receivables and customer invoices by hastening their collection. Now who wouldn’t want that?

invoice finance londonA company in its usual operations and trade sells its products and/or services either in cash or in credit. In the latter, this is referred to as trade receivables and is contained in the customer invoices. There is a sale but the receipt of cash isn’t always spot on. When sales are on credit it can take for weeks to months before full collection is attained. In some cases, the owing clients even default in payment, others late while others not at all. But the company may have the need to get hold of the cash locked up in such invoices for several reasons. This is where factoring steps in.

The business sells its customer invoices, a corporate asset, to a financial institution often referred to as a factoring company or simply a factor. The factor in turn gives the selling company an advance which is equivalent to a major percentage of the value of the sold invoices. This can be for as high as eighty to ninety five percent in value.

Another perk of such financing method is that the business is freed up and relieved of the collection process as the factoring company takes charge and holds the responsibility of collecting from the owing clients. Upon complete collection, the factor will give the company the remaining balance of the value of the invoices less the discounts and fees that both parties have agreed upon at the onset. In essence, factoring involves the sale of the customer invoices and the right to collect against them.

The services of factoring companies can be divided into two: bulk or single invoice. In the former, the company sells off all of its invoices and pays a monthly fee. The latter on the other hand is more of a one-time transaction only but should a company wish to use it again then they can do so and the fees involved are only attributed to the invoice at hand.