Friday, November 28, 2008

Small Businesses Benefit From Single Invoice Factoring

An old and widely used form of funding for businesses known as standard invoice factoring, has been around for over 4000 years. Now there are a number of innovative new factoring solutions called single invoice factoring, or spot factoring, where companies can get short-term working capital to grow their businesses and improve cash flow. Small businesses often find it difficult to get traditional funding.

Here's how spot factoring works. The factoring company purchases selected invoices at a discount. It is a fast, easy, and affordable way to turn receivables into cash.

Many businesses do not get paid immediately for delivered products or services; but, in order to sustain and grow the business, they need cash. Single invoice factoring benefits businesses that do not get paid for 30 to 90 days by advancing up to 90 percent against invoices.

Spot factoring companies typically look at the creditworthiness of the client's customers. Invoice factoring companies often fund within as little as 24 hours, and they don't expect to buy 100 percent of a company's receivables, so there are no minimum or maximum sales volume requirements.

Most invoice factoring companies have professional rates that are competitive. Each client's circumstances vary which may have an impact on the fees that the invoice factoring company charges.

This "use it as you need it" funding option can be very effective during tough economic times. Each invoice purchase is a separate transaction and does not form part of a portfolio lending approach. The transaction is modeled as a buy-sell transaction.

First the spot factoring company will undertake a due diligence that often takes one to two business days. Once this step has been completed the client is at liberty to offer invoices for purchase. Upon receipt of the invoices, the spot factoring company will check the credit of each debtor named on the invoices provided. They make sure that the sale represented has been satisfactorily completed. Once this is done the debtor is advised of the purchase of the invoice by the spot factoring company, and the client receives their funding. At the end of the credit period the debtor will then pay the spot factoring company directly, completing the transaction.

Many spot factoring services are flexible, cost effective and fast. If a client chooses to offer further invoices to the invoice factoring company, the total transaction time is often reduced to just two to eight hours.

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