Invoice financing is a broad term which covers a variety of borrowing options which work on the premise using your sales ledger as collateral for immediate borrowing. One of these options is Single – or Spot – invoicing. This type of finance has much in common with the more well-known invoice factoring product, however, there is a key difference.
Rather than selling your entire sales ledger to an invoice finance company, single (or spot) invoicing gives you the option to advance the funds tied up in a specific invoice or a selected number of invoices. You can choose exactly which customers to finance, while retaining the rest of your ledger to collect yourself.
The idea behind invoice financing is that you sell your debtor book – or selected unpaid invoices – to a finance company. They will then immediately advance you a set percentage of the value of these invoices which is typically between 70-90%. The spot factoring company will then assume control for collecting the payment owed by your client.
Once your customer pays the invoice, the finance company will retain an agreed amount of this by way of payment for their services, before forwarding you any remaining funds. If you use a standard factoring or discounting product, every invoice you issue will be treated in this way, meaning you will never receive the full face-value of any invoice.
Single invoicing can therefore be a more cost-effective way of utilising invoice financing, as you are only paying the associated fees and charges on a select number of your invoices, rather than your full debtor book. This means you can retain control over your smaller value clients, and just finance the larger payments as and when you need help with your cash flow.
Due to the flexibility afforded by single invoice factoring, higher fees are charged when compared to whole of ledger factoring and discounting arrangements. However, if funding is needed for just a short time, this can still be a more cost-effective way of obtaining finance for your company rather than seeking a traditional loan which will see you paying interest for many years.
Spot finance can provide the cash boost your company needs to assist with general cash flow, or to fund a growth project. Once your spot factoring account has been set up, the ability to unlock one, or all, of your invoices almost immediately, means this funding can be tailored your company’s requirements as and when its financial situation changes.