In short, Spot Factoring (the factoring of one / a selection of invoices) is relatively more expensive than a whole turnover facility. In other words, on an invoice-by invoice basis, you would expect to pay a higher amount to just fund one invoice.
Much depends on the overall funding requirement before a decision can be made regarding the best way forward.
For example, if an exceptionally large invoice (relatively speaking) has been issued on long payment terms and this has caused a short-term issue in respect of cashflow, then Spot Factoring could be the way to go.
It is probably easiest to look at mobile phone costs as an example. If you intend to use the phone every month, then take out a contract. If you feel you only need the service as an emergency, then maybe consider a PAYG (“Pay As You Go”) solution.
The question we always ask is – “if you fund the one invoice this month, will you need to fund invoices again next month”. If the answer is “Yes”, then we would generally look at traditional factoring alternatives.
Of course, traditional factoring usually involves a contract period and commitment to some form of monthly minimum fee. As a compromise, maybe start off with a Spot Factoring solution, but ensure that if the service is used regularly, it will be worth considering a selective or full turnover facility.
As always, we are here to offer advice to owner-managed businesses and point out any advantages and disadvantages when looking at solutions.
