What is spot factoring (definition, advantages, how it works)

What is spot factoring?

Spot factoring, also known as on-demand factoring is a financing option that allows a company to temporarily transfer part of its receivables to a factoring company without obligation. This type of financing is designed to meet a company's short-term cash needs.

If a company does not wish to take out a factoring contract for all its receivables, it can opt for one-off factoring. flexibility to the company, allowing him to assign to the factor one or more invoices according to his needs, with no commitment to a minimum annual volume or minimum amount.

In addition, the company can terminate this process at any time As such, it is a temporary form of financing, suited to very specific, non-recurring needs. The company remains free to decide whether or not to use it for those customers it wishes to transfer exclusively.

What are the differences between factoring and spot factoring?

Factoring and spot factoring are two financing methods with important differences:

Scope of assignment of receivables

With conventional factoring, the company must assign all invoices to a single factor, for an indefinite period With one-time factoring, the company can choose which invoices it wishes to transfer with no commitment to duration or volume, and no guarantee fund.

Flexibility and freedom for the company

With conventional factoring, the company is bound by an exclusive contract with a factor This limits the company's ability to negotiate financing terms and change service providers. With spot factoring, the company can use several factors, depending on needs and opportunities, and benefit from greater flexibility.

Cost of financing

With conventional factoring, the company benefits from a more advantageous commission rate With one-time factoring, the company must pay a higher commission The factor assumes more risk by financing individual invoices.

In short, factoring is a more comprehensive and engaging financing solution while spot factoring offers greater flexibility for the company by allowing it to choose which invoices to sell, with no restrictions on duration or minimum volume.

How does spot factoring work?

Spot factoring works as follows:

• The company select specific invoices which it wishes to sell to the factoring company;

• The company sends selected invoices to the factoring company ;

• The factoring company checks the validity of invoices and the solvency of customers mentioned on them;

• Once the verification has been carried out, the factoring company advances a percentage of the total invoice amount to the company . The percentage may vary depending on the agreements reached.

• The factoring company is responsible for collecting amounts due from customers mentioned on invoices ;

• Once the amounts have been collected, the factoring company deducts its fees and commissions, then pays the remaining balance to the company;

• Once payments have been received, the factoring company releases warranties that had been put in place.

What type of company is it for?

Spot factoring is designed specifically for VSEs who issue invoices and prefer not to get involved in a traditional factoring contract. companies looking for a flexible financing solution tailored to their specific cash flow requirements with no long-term commitment on all their receivables . It is essential to underline no sales, legal status or field of activity thresholds is required.

This option allows you to financing the short-term cash needs of very small businesses without having to subscribe to a conventional factoring contract.

When might a company need spot factoring?

A company may need spot factoring in the following situations:

• She has occasional cash requirements related to a peak in activity, an investment, a seasonal event, a crisis or an unforeseen event;

• She does not wish to enter into a conventional factoring contract which involves assigning all your invoices to a single factor, for an indefinite period, with a minimum amount of receivables ;

• She wants to keep control of its accounts receivable by choosing which invoices to assign, without informing its customers of the assignment, and by maintaining the commercial relationship with them;

• She wants fast, flexible financing with no deposit or guarantee, and no administration fees.

How does factoring pay for itself?

The factor is remunerated in two ways:

• He receives a factoring commission, which covers the cost of managing, collecting and guaranteeing assigned receivables. This fee is calculated on the amount of invoices transferred and varies according to the type of factoring, sales, payment terms, etc.

• He receives a financing commission This fee is calculated on the amount of the cash advance granted to the company. This commission is calculated on the amount of the cash advance granted to the company, and depends on the interest rate, the duration of the financing, the method of customer payment, etc.It is generally equivalent to the bank loan rate, or even lower .

How much does spot factoring cost?

The cost of spot factoring depends on a number of factors, such as :

• The amount and number of invoices assigned ;

• Business sector and geographical area of the company ;

• Solvency and payment terms customers ;

• Type and duration of factoring contract ;

In general, it oscillates between 2% and 3% of the amount of invoices financed depending on market players and assignors' credit ratings.

In addition, the cost is higher than with other forms of factoring, but it allows you to finance only one invoice at a time, which is sometimes what companies are looking for.

What are the advantages of on-demand factoring?

Factoring on demand, or spot factoring, offers several advantages for companies, such as :

• No commitment in terms of amount or duration;

• Immediate estimation and simulation factoring costs (no hidden or complex charges);

• No sales threshold required ;

• Freedom to choose your invoices and customers to finance ;

• 100% protection against late payment or payment defaults, including insurance against the declared or presumed insolvency of your customers;

• Quick to set up (24H to 48H on average);

• Financing your claim depends solely on your customer's creditworthiness, without the need for a guarantee or security deposit ;

• Up to 100% financing available.

What are the drawbacks?

Spot factoring has a number of advantages for the company, but it also has disadvantages, such as:

• A high cost financing ;

• A loss of customer relations The company's image with its customers deteriorates, reducing customer loyalty;

• Dependence on factor The company must comply with the conditions imposed by the factor, such as the quality of the debtors, the payment period, the method of settlement, etc. ;

• The impossibility of delegating credit insurance ;

• Termination difficulties This is because the company has to wait for payment of the invoices assigned by the customers and for the factor to pay the balance;

• The minimum invoice amount is often set at €2,000.

How do I set it up?

To set up spot factoring, follow these steps :

• Select a factoring service provider . Choose a reputable and reliable factoring company to work with. Make sure you understand their terms, rates and services.

• Assess eligibility . Check that your company meets the factoring company's eligibility criteria. Each factoring company may have its own specific criteria.

• Set the terms and conditions . Discuss the terms of the contract with the factor, including fees, discount rates and payment terms.

• Select the invoices you want to factor. Select the invoices you wish to factor. Generally speaking, invoices must be recent (less than 20 days old) and undisputed.

• Send invoices to the service provider . Send the selected invoices to the factoring service provider. They will check and process them.

• Get financing . Once the invoices have been checked, the service provider will advance you part of the amount.

• Final settlement. When your customers pay their invoices, the factoring service provider pays you the balance, after deduction of agreed fees and discount rates.

• Monitor performance . Keep an eye on factoring performance to make sure it meets your financial needs efficiently.

What are the alternatives?

There are alternatives to spot factoring, which may be better suited to certain situations or company profiles. These alternatives include :

Discounting

This is an operation whereby a company transfers a commercial paper to its bank (a bill of exchange or promissory bill, for example), so that the bank will immediately pay the amount, less a commission. Discounting enables a company to access cash quickly, without waiting for payment from the customer. Discounting is less costly than factoring but it requires a guarantee or deposit, and does not offer a collection service or a guarantee against non-payment.

Cash credit

These are a loan granted by a bank to a company to finance its short-term cash requirements . Cash credit is simpler to set up than factoring, but it requires the company to take on debt, and offers no collection service or guarantee against non-payment.

Hero, the B2B payment platform

Hero is a financing platform that offers prepayment solutions for invoices . It enables companies to obtain rapid financing in exchange for a small commission . This can be a flexible option for companies that need cash quickly.

Thanks to deferred payment and instalments Hero is a payment solution that enables your customers to place orders now and pay later, simply and risk-free.Hero gives you additional selling points by offering these payment facilities.What's more, unlike factoring, it doesn't jeopardize your commercial relationship with your customers, who can pay deferred (after 30 or 60 days) or in 3 or 4 instalments. On your side, you also avoid cash flow mismatches because the platform advances you the amount of your invoices.

In conclusion, spot factoring is a flexible solution for companies in need of fast, one-off financing. It enables invoices to be converted into cash without the need for a long-term commitment. affacturage is an interesting financing solution, but one that needs to be studied carefully before being implemented.

Other articles on the same subject:

• Factoring: what is it and how does it work?

• Factoring for very small businesses: Hero makes it easy to finance your invoices

• SME factoring: finance your invoices easily with Hero

• Factoring for training organizations: Hero makes it easy to finance your invoices

• Online factoring: finance your invoices online with Hero

• How much does factoring cost and how can I calculate it?

• Factoring contract: definition and how to draw it up

• Factoring company: what is it and what is it for?

• E-factoring: what is it?

• Factoring: what is it?