Spot Factoring Can Provide the Flexibility That Small Businesses Often Seek

Many small businesses and others today make use of factoring arrangements on a regular basis. Being able to turn accounts receivable into ready, available cash can make life a lot easier. In many of these cases, factors prefer to work with companies that will commit to providing them a certain level of business over time. While it might not make sense to put in the effort needed to arrange a factoring deal on a one-off basis, in some cases, doing so to develop a long-term relationship can be a very different matter. Particularly among relatively small companies, agreements that require the factoring of at least one customer’s invoices on a recurring basis are common.

On the other hand, arrangements of this kind will not always be the best option for the would-be recipient of factoring funds. In even more cases, small businesses find that only an occasional need for the immediate cash to which factoring provides access will crop up. While entering into a longer-term factoring agreement can still be a way of helping to smooth out cash flows and create a more predictable, stable financial environment, it can also be costly. Giving up the money that factoring costs even when cash might not be needed can drag a company’s results down.

Many businesses will do well to look into one-time factoring opportunities, instead. Known generally as spot factoring, this form of the service comes without the requirements and restrictions that might otherwise reduce its value. Instead of being contractually bound to present every one of a particular client’s invoices for factoring as they are delivered, this will mean being able to pick and choose only those that really make sense.

Naturally enough, this kind of flexibility will also typically come with a price. Compared to a contractual factoring arrangement, a spot-based agreement will require more work on the part of the factor relative to the guaranteed returns. As a result, fees will typically be somewhat higher, and requirements regarding the credit status of the invoice recipient will sometimes be stricter, as well. In many cases, however, this option will still end up being clearly preferable to committing to a long-term factoring arrangement and the costs it will entail.