{"id":92,"date":"2011-09-07T11:22:50","date_gmt":"2011-09-07T10:22:50","guid":{"rendered":"http:\/\/www.smartfactoringquotes.co.uk\/blog\/?p=92"},"modified":"2019-09-02T00:52:49","modified_gmt":"2019-09-01T23:52:49","slug":"spot","status":"publish","type":"post","link":"https:\/\/www.smartfactoringquotes.co.uk\/blog\/?p=92","title":{"rendered":"Spot factoring and invoice discounting"},"content":{"rendered":"

Perry Burns of Working Capital Partners talk us through the market for spot factoring<\/em><\/p>\n

A typical factoring or ID facility will be assessed on the creditworthiness of the supplier who will be expected to offer most, if not all, of his ledger to the Factor and to commit a minimum amount of annual revenue to them.\u00a0 There may also be a fairly complex charging structure which can make the facility seem hard to understand and expensive.\u00a0 To mitigate this, some factors will offer a debt collection service. This can be something of a mixed blessing because, by definition, they are less worried about the commercial relationship between the supplier and the customer; and may be rather more aggressive in collection than the supplier himself would be.<\/p>\n

For these and other reasons, suppliers often regard factoring as a necessary evil and enjoy a love hate relationship with their Factor borne out of the frustration that the delay in collecting cash can cause.<\/p>\n

Although it is very common in the USA and Canada, until very recently, Spot Factoring or
Single Invoice Factoring has not been very common in the UK.\u00a0 This is for two main reasons.\u00a0 Firstly the sums involved are typically too small to be economic for a large Factor to support.\u00a0 Secondly, to make it work the Factor has to have a close working relationship with the supplier and really understand his industry and business processes.\u00a0 For most financiers, the investment in creating the relationship is simply too high in terms of the likely reward.<\/p>\n

Nevertheless the demand is there.\u00a0 Small and newly established businesses have just as great a need for cash as larger enterprises.\u00a0 Especially with bank lending still being very tight, they are finding it very hard to grow out of the recession as quickly as many of them would wish.<\/p>\n

The funding options for smaller businesses tend to be very limited.\u00a0 As they are new, they have very little track record, and even where they do they often want to do larger deals than they can finance.\u00a0 Banks are typically unable to help and for the reasons stated above, factoring is usually not an option.\u00a0 This means that they lose the opportunity to
grow and can become bitter and frustrated.<\/p>\n

With the arrival of spot invoice discounting <\/a>however, all this has changed.\u00a0 With our Spot Factoring<\/a> service, the facility is put in place and used on an as needed basis.\u00a0 There is no minimum commitment and each transaction is judged purely on its own merits.\u00a0 Thus a new start selling say, services to the NHS or a Local Authority would be eminently financeable, even if the transaction was only a few thousand pounds.\u00a0 As long as we have
evidence of provable debt, the transaction can be financed, usually to 85% of
its face value.\u00a0 And of course because this is Selective Single Invoice Discounting<\/em>, once the customer has paid, the obligation to us is normalised and there is no unwinding fee or
future commitment.<\/p>\n

The process is simple.\u00a0 Once we are introduced to a new supplier we undertake a basic review to ensure that there are no obvious red flags.\u00a0 Single invoice discounting is
offered as a recourse transaction, so we have to be sure that if the customer
fails, the supplier will be in a position to repay the advance.\u00a0 Especially for younger businesses therefore, the directors will be required to guarantee the outstanding amount and a debenture on the company\u2019s assets will usually be required.\u00a0 We normally require that the business has more than one customer and we will only take up to 60% of their receivables.<\/p>\n