How spot factoring works
The term spot factoring has been slowly finding its way into the factoring lexicon. Essentially, it is the same thing as single invoice factoring or selective invoice discounting. The reason that it is called spot factoring, and is becoming more common in its usage, is that it refers to the increasingly popular practice of being able to pick your spots and choose which invoices, if any, you want factored. This allows you to retain control over your receivables ledger whilst spending the minimum fees to guarantee adequate cash flow.
Typical Spot Factoring Transaction
- Each transaction has three main parties: the company that sells the invoice, known as the Client; the company that will pay the invoice, known as the Customer (or account debtor); and IFG, who provides funding through its spot factoring service.
- The Client manufactures and delivers the goods or provides the service that the Customer has ordered, and then invoices the Customer for the appropriate amount.
- In an effort to address immediate working capital needs, the Client will sell a specific invoice or group of invoices to IFG for cash at a discount.
- The Client notifies the Customer that the invoice has been sold.
- The invoice is then paid by the Customer directly to IFG; typically, IFG will receive payment within 30-45 days.