Spot Factoring vs. Standard Factoring

The Interface Financial Group has been providing invoice factoring services in the US and Canada since 1972. We call it invoice discounting, but others call it invoice factoring or spot factoring. I often talk to clients how to best finance their business. Many times, when they start exploring factoring they focus solely on the rate charged per invoice. Although discount rates are important, focusing only on this percentage is the wrong way to evaluate factoring options.

The smart way to determine the best factoring option is to first examine the needs of your company, and compare them with the arrangement the factoring company is offering. How much money do you need? What percentage of the your invoices do you need advanced?  What about invoices a client doesn’t want to factor, do payments for those have to go through the factor as well?  Is there a cost to switch to another factoring company or financing source, or will the factor allow you to freely switch if you are unhappy with their service?  Is their a minimum fee when factoring an invoice, or is the rate prorated daily?  Are there any fees in addition to the discount rate, such as application fees, wiring fees, due diligence fees, or monthly management fees?

IFG’s service, spot factoring, competes by using flexibility and a straight forward pricing structure to gain clients.  There is no setup fee, no long term contract, no minimum or maximum dollar limits. Our clients use our factoring service as needed. The cost of money is calculated on each invoice for days the money is outstanding and the percent advance on that invoice. You can easily control the cost of money and only use it as needed.

Standard factoring, which Interface also offers, has an application fee, a term contract with dollar limits, monthly minimums, early termination fees, etc. The cost per invoice is less than invoice factoring, but it comes with a volume and time commitment. This is a better option for companies that need to factor most of their invoices year round.

All factoring companies are not alike!  When looking for factoring, make sure to ask the right questions.  Although most people like surprises, typically they are unwelcome in the world of business finance.

This entry was posted on 17. August 2009 at 21:59 and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or trackback from your own site.

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