Tag Archives: spot factoring

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.

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On Choosing Spot Factoring Companies

choosingChoosing spot factoring companies is just as important as picking which among the wide array of financing alternatives to use. It spells either the success or the ultimate failure of one’s endeavors. After all, despite the method’s effectiveness things will still boil down to whether or not the provider can indeed supply what they claim to do so.

So the question goes like this. What do we look for?

1.    COMPETENT STAFF

As they say, a company is only as good as the brains behind it. No one can continue walking the path to success with an incompetent team. Make sure that the people and the professionals are indeed skilled and qualified as they say they are. Check for qualifications, licenses and even ask for previous experiences and services.

2.    CUSTOMIZED SERVICES

Not all companies belong in the same industry. Not everyone has the same transactions. They don’t sell the exact same products and offer completely parallel services. Businesses differ in one way or another making it a must that your factors should be able to provide you with a service that is personalized and custom built for you. Sure, the policies and other standard procedures will hold steadfast but there will be items that should depend on the company being serviced.

3.    PUNCTUALITY

One of the reasons why business entities decide to factor their receivables is to hasten the recognition of cash. If the provider is unable to do so in a timely manner then the very purpose of one’s actions will be foregone. We all know that time is an important factor in business and those who cannot deliver on time are dead weight.

4.    REVIEWS AND FEEDBACK

One of the important parts of running research and background checks on the available spot factoring companies is to look for relevant and reliable customer reviews, feedbacks and testimonials. These should come abound. With the help of the internet, they are easier to find among forums, blogs and industry websites. Recommendations from friends, family, colleagues, employees and partners are also welcome but make sure to take them with a grain of salt.

5.    REASONABLE PRICING

This is something to consider when looking for spot factoring companies. We surely do not want anyone to charge us with a price so high that it becomes so much of a burden. Make sure that they too do not come with hidden charges making them affordable upfront but expensive later. Always consider things at the long run.

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.

Spot Factoring: What is it?

These two words may sound a little foreign to most people but definitely not to businesses. Single invoice or spot factoring is the strategic process of raising financial resources against individual invoices. Here, cash is released which are still locked up. It is a business financing solution which enables a business to receive cash in advance on a single outstanding invoice. Companies involved in this provide their clients their needed resources by financing client invoices as they are generated and as they are needed.

business lending 01There are some companies which are hesitant about factoring as they are afraid of getting tied up in lengthy contracts and on going commitments which in the long run can be fatal to them. Here the beauty of spot factoring comes in. It is a one time basis and unlike other factoring contracts, they won’t hold you down for far much longer than you would want to.

When looking for spot factoring companies there are three essential elements for you to consider and to study about. The first two are the size and amount of your invoice while the third is about customer impact.

These said companies will check upon your invoice, confirm that your products or services have indeed been delivered or rendered and then underwrites the credit worthiness of the debtor. When these are accomplished, they will advance a percentage of the invoice to the business which will depend upon the agreed proportion. The balance will then be released when the invoice has been fully paid.

Companies use this for several different purposes like unexpected expenses, the need to fund an important and urgent project, for extra income, a boost in employee morale, opportunities for growth and a better chance at reaching out and influencing the general community. Do know that those are only a few of the many things companies encounter that make them need spot factoring.

Whenever businesses urgently need financial resources for whatever reason and cash is not readily available, they would often reach out to banks or lending institutions where they acquire debt. This has been a common practice but is often frowned upon as a heavily indebted company is in very risky waters. When credit risk is so high, investors can get skeptical and scared that they might withdraw. So most companies would then turn to spot factoring. It does not incur them any debt and at the sane time it provides them with the resources they need.

UK Factoring Companies: What Services Do They Offer?

Factoring is known to provide an answer to companies who have slow paying customers and those who need a boost in their working capital. Others even see it as a means to protect themselves against noncollectable accounts and losses from bad debts. At present there are notable UK factoring companies like workingcapitalpartners.co.uk who provide their services to the market. They offer many different services and types of factoring. These variations occur as different companies may provide for different rates, terms and conditions. Rest assured these are always communicated to their clients as transparency is one thing that keeps this business growing.

factoring companiesFirst and foremost let us describe the process. The owner of the receivables or invoice sells these to a factor who in turn gives a percentage of the value in advance. The factor will chase after and collect the payments from the customers and once the whole amount has been fully collected, the balance left of the invoice’s value will then be given by the factor to the seller. This will then be less any fees or commission which both parties have agreed upon. So what services do these UK factoring companies offer? Here’s a little info for all of you.

For one, there is this thing we call Recourse. Here credit protection is not part of the agreement. In here you are responsible for buying back the invoices which have not been paid by your customers within the agreed upon period. Even if the factor has purchased the invoices from you and given you a percentage in advance of their values, you assume the risk of uncollectability. Fear not though as factors help you out to avoid having these buy backs. As part of their services they will check up on your accounts and customers to see their ability to pay. Also they can take care of managing your receivables alongside your own in house team.

If however you do not want to assume any risk of uncollected amounts you may opt for Non Recourse. They will completely assume the risk and thus relieve you from any bad debts.

There is also what we call the Modified Recourse where the factor carries receivable insurance for amounts uncollected due to inability to pay for financial reason. For other causes other than that the company must buy back the invoices.

In the event that you don’t want to subject all your receivables to a factor but would prefer a one time transaction, UK factoring companies may provide you with spot or selective factoring. This will allow you to choose which receivable to use and when to use it.