Tag Archives: spot factoring company

Cash Flow Mistakes and How Spot Factoring Can Help

spot-factoringCash flows, as its name suggests, refers to movement of actual money received and spent. It showcases the pattern of income and expenses, and its consequences for how much money is available at a given time. Despite its description being straightforward and easy to understand, the same cannot be said when it comes to its management. It can be tricky and at times pretty hefty. Luckily, spot factoring is a life saver in such cases.

So what mistakes do most entrepreneurs make against cash flows that can seriously threaten the company’s liquidity? Here take a look.

Mistake: Long Outstanding Receivables

Accounts receivables are not bad per se but if they become long outstanding then they cease to be quite the promising asset they were supposed to be. Long outstanding accounts mean that they have gone past their maturity. They remained uncollected and therefore useless and illiquid. Overtime they can even be written off as losses.

Mistake: Overestimating Sales Volume

There is nothing wrong about optimism in business but everything has to be set on a realistic scale. Your sales won’t triple in a month by some miracle. If you overestimate and make use of unrealistic and proof-less basis then you are in for a bloody treat. You might even spend more thinking that you are going to earn more which can be fatal.

Mistake: Poor and Lenient Credit Terms

Regardless if you are the vendor or the buyer, it is important that you take a good look at the terms and conditions you set out or are set before you. As a vendor, make sure that you are not lenient when it comes to credit policies offered to your customers. As a buyer, understand all terms first before signing into the contract.

Mistake: Mismanaged Records and Transactions

To better gauge and assess one’s cash flows, proper records and management is necessary. There has to be a system set in place to raise red flags when disadvantageous circumstances arise. Accuracy and timeliness are also crucial here. If records are erroneous or are not recorded and made available in time then all efforts will remain futile.

So how does spot factoring fit in all these? Of the mistakes listed above, long outstanding receivables or simply a high bulk of trade receivables threaten liquidity as it traps cash within invoices for significant periods of time thereby preventing the business from using its resources. With spot factoring, companies can advance their value prior to their maturity thus hastening acquisitions and providing a quick financing option without having to settle with debts.

http://workingcapitalpartners.com

Traditional and Spot Factoring: What’s the Difference?

spotfactoringInvoice finance has come to bread various methods under its belt, each of which has their own unique perks and benefits. Take traditional and spot factoring for example. The two have almost the exact same advantages but they’re still different, if by a smidge. There’s a thin line that draws them apart and unique from each other and today we’ll explain further and help you understand them.

Traditional Factoring

In this type, the entire invoice or receivable bulk is subjected to the financing method. In other words, each and every invoice is advanced thereby allowing the company to receive the cash attributed to them prior to their maturity and before actual payments by customers are made.

This involves a long term contract which can last from a few months to years depending on the terms agreed upon by the parties involved.

Control and burden of collection of all receivables shall now cease to be the company’s as it is shifted to the factor that carries such responsibilities.

Spot Factoring

On the other hand, spot factoring only involves a specific and single invoice purposely chosen by the company itself for whichever reason it deems fit.

It is therefore a onetime transaction and does not involve any lengthy contracts or arrangements. The company may choose to use it whenever and how often it wants and the choice of the invoice used lies completely up to them as well.

In the same manner, cash equivalent to the value of the receivable is advanced prior to its maturity and before payments by customers are made. The task of collecting also rests with the factor or the financing institution.

Benefits

As mentioned previously, both traditional and spot factoring still carry a good number of similar benefits. The thin line that separates them after all is the number of receivables used and the length by which the transaction or relationship between the parties exist. To be specific, here are the two major perks of using them:

  • They strengthen working capital. – By allowing for better liquidity and freeing locked up cash within invoices, both provide for a better cash flow thereby empowering working capital and making resources available for immediate use in operations.
  • They’re no debt. – Both traditional and spot factoring are asset transactions. In that sense, they are no liability or loan so they do not come with the strings attached to one such as interest. They even reflect in the books as a decrease in receivables and an increase in cash.