Spot Factoring Versus Bulk Factoring

receivable-factoringReceivables factoring comes in two forms: bulk and spot factoring. Today, we’ll set out the differences and similarities of the two and hopefully help users establish which among them suits their needs best.

Definition

Bulk Factoring (BF) – Pertains to the use of customer invoices to draw immediate cash by selling the rights to their collection in exchange for an advance of their value, received before customers send in full payment or a part thereof.

Spot Factoring (SF) – Refers to the use of a specific customer invoice to draw immediate cash by selling the right to collect against it in exchange for an advance of its value, received before customers send in full or partial payment.

Users

BF – Companies that offer credit sales and therefore has trade or accounts receivables in their financial books can make use of the financing method. It is not restrictive so entities regardless of size, status and industry can utilize it.

SF – The same applies.

Term

BF – In this arrangement, all of the entity’s sales invoices for a particular period of time shall be subjected to the factoring method. Their values shall be advanced and collection shall be performed by the factor. It is a long term contract which will last depending on the agreement of the parties involved.

SF – In contrast, spot factoring is a onetime deal. It makes use of only one customer invoice making it a single transaction. It is because of this that it has been dubbed or called as selective or single invoice factoring in other places.

Cost

BF – The fee shall cover the long term period stated in the contract and will be a bulk percentage instead of an added up single fee for each invoice.

SF – There is only one fee involved which is dependent on the single invoice used. Because it is a onetime transaction, cost is also a onetime deal.

Benefits

Despite their differences, both bulk and spot factoring come with similar benefits or perks. First of all, it is a zero liability deal. It is not a type of debt and is in fact an asset transaction where an increase in cash is coupled by a decrease in trade receivables. Second, it is immediate and fast without the usual fuss involved among traditional financing methods. Lastly because it hastens the collection process, it is able to  better cash flows and improve the company’s working capital, allowing it to keep its liquidity or even improve it.

What is an Export Overdraft


What is an Export Overdraft

Foreign trade for most business entities is both a dream and a challenge. The possibilities and opportunities brought about by exportation are not only promising but also an avenue to expand operations and take advantage of the international market. Unfortunately, it isn’t an easy feat to accomplish not with all the exhaustive documentations required and the presence of various financial risks. This is why financing methods such as the export overdraft have been born. But what is it?

An export overdraft is part of business finance and a very potent tool in foreign trade. It is designed to aid startups, small to medium scale enterprises, established businesses as well as entities in recovery for their international and cross currency trading transactions without the much dreaded complications of financial risks (e.g. interest rate risk and currency rate risk) and meticulously detailed documentation requirements. Moreover, it can likewise sustain the cash flow necessities of a growing company who has yet to start exporting but finds pressure in terms of funding due to delayed cash actualization brought about by either strict vendor terms or deferred customer payments as in the case of credit sales.

What makes this financing method very appealing is the fact that it is competitively priced at an affordable rate without hidden costs and the restriction of a long term contract, making it feasible even to startups and small enterprises. Furthermore, it is very simple to use and understand as it an export overdraft facility works just like a factoring facility.

There are five main advantages to this method that many exporters and aspirants chase after. They are the following:

  • export-overdraftCurrency – Companies no longer have to worry about having to monitor the exchange rates and facilitate the currency conversion for all transactions.
  • Payment – Businesses are able to receive the payment of export orders almost instantaneously thereby strengthening the working capital, cash flow levels and liquidity.
  • Expertise – Companies get to tap on the facility’s expertise in international trade, foreign markets and collection procedures.
  • Language – Mastering several languages from customer countries will no longer be a necessity especially when it comes to collection and invoicing.
  • Risks – Certain risks such as those brought about by currency exchange rates and interests are minimized if not completely avoided allowing for lesser to zero losses.

Of course, a vital ingredient to export overdraft success is finding the right provider or facility such as workingcapitalpartners.com. In other words, chase for quality to receive it.

Export Finance Blunders and Mistakes

export financeExport finance has become one of the most powerful tools utilized by businesses that wish to expand their operations internationally however not everyone knows how to use it as best as they could.

It does not come as a secret that despite of the growth and promising sales of foreign trade, it comes with quite an amount of effort to pull out. Selling a product overseas require shipping and transfers. There are extra duties and taxes to be considered and not to mention freight expenses. Delivery takes long and so does payment. More time and energy will be required in assessing customers and their creditworthiness too. This is why export finance has been considered a hero in the equation but sadly many companies commit mistakes in its use. To avoid committing the said crimes and benefit more fully, here is a list of the said blunders to warn you ahead.

Mistake: Lack of Understanding

Fix: Despite of export finance’s usefulness, not all businesses know about it. Some may have heard of it but still fail to understand it completely. It is necessary to fully comprehend and grasp its use, its procedures, its pros and its cons to use it as best as possible. Research is key here and it won’t hurt to ask a professional to explain it to you either.

Mistake: Absence of Planning

Fix: Using it to your advantage will necessitate adequate planning. Companies need to incorporate it well into current operations and business processes. In order to achieve this, a plan has to be made and executed.

Mistake: Bad Providers

Fix: Not all export financers are great. Just like anything else, there are good and bad sides to the coin. You have to go with the former. Look for the best providers that’ll deliver the quality that you need. Again, research here is necessary. Ask around too and look for recommendations from friends, family and business colleagues. Don’t forget to refer to customer feedback and reviews too. You’re bound to find them with the help of the internet.

Mistake: Misleading Terms

Fix: Before you sign into the agreement of the export finance, make sure that you read through carefully and understand before you sign and concur to its terms and conditions. Not all providers are the same so don’t expect that one contract is the same as the other. Peruse through them carefully. Ask for clarification when needed and don’t hesitate to inquire about having certain clauses changed when required.

For more information on exporting visit http://workingcapitalpartners.co.uk/.

What is Invoice Discounting

invoice-discountWhen it comes to financing, credit and debt are two of the first things that come into mind. However we all would agree that entrepreneurs would want to avoid those two as much as possible. There’s nothing wrong with loans. Don’t get us wrong. But it would be far better to live off and operate without it, don’t you agree? So how do you raise funds without them? Is there any other way? Yes there are, quite a few in fact.

Definition

Explained in capsule, invoice discounting allows a business to draw money against its sales invoices before the customer has actually paid. It is a short term borrowing but without the repercussions and effects that traditional forms of credit possess.

It works slightly akin to invoice factoring but instead, uses the receivables as a form of collateral. Also, the company still retains the burden of collection and will repay the financial provider with the sum advanced plus a percentage of fees.

How It Works

Businesses sell either on cash or on credit. The barter of trade with the former is immediate. Sellers provide the goods and/or services while buyers pay cash in exchange. As for the latter, the buyer defers payment as they become debtors thus owing amounts to the company.

Of course, most entities have set up means to ensure that they only extend such credit sales to deserving and qualified customers. However, it cannot be discounted that the cash that comes with the receivables and invoices created by such transactions is trapped and made unavailable for use.

To free up those invoices even before customers get to paying, invoice discounting can be used. The financial entity provides an amount equivalent to or of a certain percentage against the value of the invoices. Companies can use such resources in whatever means they find necessary. They will then collect from the owing customers once maturity date comes and once completed, they shall then repay the provider.

Perks and Benefits

Companies make use of invoice discounting for the perks that it provides. First of all, it helps strengthen the working capital and improve cash flows. Not only does it free up the locked in cash but it also creates immediate availability making it a great option in cases where the business is in need of instant resources for an emergency situation. 

The Top Misconceptions About UK Single Invoice Finance

UK invoice financeUK single invoice finance has become one of the top funding methods used by entrepreneurs today. This allows companies to derive funds out of their trade receivables in even before their owing customers actually send in full or partial payment. The benefits to it are quite diverse. Of course, one has to use them properly in order to receive maximum benefits. The sad thing is that many entrepreneurs fail to grasp its many promising features mainly because of the misconceptions that have surrounded invoice finance. We’re here to help you debunk them so we can have our information all ironed out.

MISCONCEPTION: It’s too costly.

TRUTH: Just like any other type of financing, UK single invoice finance comes with a cost albeit it is much lower than what many people think it is. It is also important to take into consideration that certain features of the invoice financing may increase or decrease the price. Such is the case when getting either a recourse or without recourse transaction. Moreover, different provided offer varying rates some pricier than others even at the same level of quality.

MISCONCEPTION: It drives customers away.

TRUTH: Factoring, which is a type of single invoice financing, creates a transfer of responsibility from company to service provider in terms of payment collection. Entrepreneurs believe that doing so can intimidate their customers because they have sold the right to collect against their invoices. This is where they are wrong. The amount to be paid by your clients will not vary at all. In fact, you should even be happy that the burden of collection will be shifted from your shoulders. Moreover, you have the option to keep the financing method private as when you get a confidential arrangement.

MISCONCEPTION: Invoice finance is only for troubled companies.

TRUTH: It is attractive in the eyes of financially troubled companies but is not restricted to them. Because UK single invoice finance does not function like traditional forms of credit, it is made available to each and every business entity out there regardless of size and financial state. Providers like workingcapitalpartners.co.uk, bank on the creditworthiness of the customers to which the invoices are attributed to and not the creditworthiness of the company itself. It would be completely wrong to say that the service is only for struggling entities because it caters to everyone. As a matter of fact, many large establishments use it to hasten their cash flows, lessen doubtful accounts and improve liquidity.

Effects of a Poor Cash Flow

poor cash flowWhen it comes to corporate financial troubles and dilemmas, one of the most common ones would have something to do with the company’s cash flows. As a common problem among various businesses across all industries, it has plagued many businesspeople and entrepreneurs enough for the experts over at the Working Capital Partners to have tons of clients ask them for advice and possible solutions regarding the matter. But for the public in general as well as budding and new entrepreneurs, poor cash flows may sound confusing if not foreign. Worry not as we’re here to help understand what it means and what effects it can bring any company.

But first things first, what does a poor cash flow mean? It is a financial term that basically refers to the total amount of money being transferred into and out of an entity’s funds thereby affecting its liquidity both in the short and long term. Cash inflows may include a return on investment, profits from sale of goods or other income. Cash outflows on the other hand are the entity’s expenditures.

When you say that a company has a poor cash flow, it simply means that there are more funds going out than in or rather more resources are being spent than is being earned. In short, there are more expenses than there are profits. The effects of that can range from being simple and fixable to fatal and deadly which includes the following.

  • A shortage of funds occurs thereby preventing timely payment and fulfillment of obligations to creditors and vendors. This can further lead to tarnished relationship between them and the company.
  • In connection to the above, added interest expenses and penalties as well as a tarnished credit history can be brought about by poor cash flows too.
  • Operations can be put on hold while other projects may have to be completely foregone due to lack of funds or resources to put them into play.
  • The most fatal effect would have to be insolvency where the company can no longer fulfill its obligations as they mature and come due thus liquidation and other forms of business recovery options will have to be considered.

Hopefully, the team at Working Capital Partners has cleared the matter for you. Now allow us to ask a question. How is your company’s cash flow doing?

Factoring Companies and What to Ask Them Before Turning in Your Invoices

invoice-factoringFactoring companies are one of the financial institutions that entrepreneurs head to when they need extra cash and capital for their businesses. The said entities provide services which we refer to as invoice or receivables factoring. This method allows entrepreneurs to sell the right to collect against their invoices in exchange for an immediate advance of their value. It is an effective means that isn’t time consuming or so much of a fuss to apply for. At the same time, it works for entities with increasing bad debts, poor cash flows, high levels of liabilities and financial problems.

Now, if you are planning to subject your customer invoices to the said service then below are a few things to ask your chosen factors before turning over your right against the collection. Read up and get to answering.

Question #1: How much can I expect to advance?

Each factor often varies in this department but you can expect around eighty to ninety five percent of the value of the invoices. It is of course best to ask and talk to many providers so you can weigh your options well.

Question # 2: Do you do single invoice factoring, monthly or both?

There are those who cater to factoring single invoices only while there too are those who only do a monthly or long term arrangement. At the same time you can find those that cater to both. You have to know your needs and at the same task ask the companies you talk to.

Question # 3: What are the fees involved?

This one will also vary from one factoring company to another. The service fee is an amount paid to the provider for the services rendered to them and is deducted from the amount that can be advanced. Be sure to ask what fees these are and what comprises it. You don’t want to be surprised so you better know for sure.

Question # 4: How fast can I get the funds I need?

The very charm of dealing with factoring companies is the fact that invoice financing can get your needed funds quicker than other funding options there are. Of course this does not go to say that every provider does this well. You have to scrutinize and ask them point blank about this. Get to know their process and at the same time you might want to read reviews and feedback on them too.

Improve Cash Flows with the Help of UK Single Invoice Finance

One of the main concerns that many businesses have is regarding their cash flows. It is important to take note that a good level of sales does not necessarily mean that the amount of cash that goes into the company is doing equally well. Remember that sales can either be in cash or in credit and it is pretty seldom for an entity not to have any customer receivables. This means that your cash inflows may not be looking good even if your sales are doing fine. This is what we call having your cash locked up in invoices making them unavailable for use. So what option do you have? You can improve cash flows with the help of UK single invoice finance.

What is it?

Invoice financeTo hasten the turnover of receivable to cash, companies may want to advance the value of a particular invoice. To do this they choose from either two single invoice finance options: factoring or discounting:

Factoring

In this arrangement, the company will sell the right to collect against a single customer invoice to a finance company referred to as a factor in exchange for an advance of its value. Such advance amounts to eighty five to ninety five percent of the invoice’s actual value. The factor then takes over the task of collection while the company proceeds to use the cash for whichever way it deems fit for corporate operations. Once the factor has been able to collect from the owing customer in full they will then forward any remaining balance on the invoice less any discounts and pre-agreed fees. So basically, the company sells an asset, its customer invoice.

Discounting

This one on the other hand is a little similar to a loan although there are no debts and no interests involved. What happens here is an advance is still taken out about eighty five to ninety five percent of the invoice value. The invoice is then used somewhat as collateral. The company is still tasked to collect from its owing customer. Once that has been completed, it then goes on to pay the finance company plus any fees that have been arranged mutually.

You can improve your cash flows with the help of UK single invoice finance because they basically hasten up the availability of cash from the receivables. In short receivable turnover is improved and cash is made available even in as fast as twenty four hours to provide for emergency cases.

Why Single Invoice Finance Really Works

Have you ever heard of single invoice finance? If yes then you are already treading the right path but if no then you better make sure to read on. This funding method has proven to be quite the solution for many businesses today, both starting and established entities.

invoice finance londonSingle invoice finance is basically deriving funds from your customers’ invoices. Such invoices are essentially receivables of the company from its clients. Remember that sales are not always paid in cash some are through credit.

In the normal pace of things, a company would have to wait for weeks to months before the whole amount due has been collected in full. But what if you would need to pool some cash for use? You cannot simply withdraw your money from your bank accounts. Plus, much of your available resources may have already been allotted and restricted to different corporate activities and expenditures. The solution is to hasten up the collection of your receivables by advancing them. Does it sound complicated to you? Don’t worry it’s no rocket science. Here’s a deeper explanation.

There are two types of single invoice finance. The first is called factoring and the second referred to as discounting.

In factoring, the company sells its customer invoices to a financing institution often referred to as the factor. It will then receive an advance equivalent to around 85% to 95% of the said invoices. The burden of collection will now be reverted to the factor who goes on to proceed with the collecting and when your owing customers have fully paid, the remaining balance of 15% to 5% will then be given to the company less any agreed upon discounts or fees.

This is essentially the sale of the corporate assets which are the receivables or customer invoices where cash has been locked up.

Discounting on the other hand produces the same benefits but has slight differences. An advance is still made from the financial institution but instead of selling them off, they are instead used akin to collateral but with no interests attached. After the advance of the value of the invoices has been received, the company is still tasked to perform the collection from its customers. When the company has completed this, it will then use such collections to repay the amount advanced from the financing firm plus any fees agreed upon.

Single invoice finance, both factoring and discounting works as a finance option because not only does it hasten receivables, free up cash locked up in invoices and improves cash flows, but it also is not a debt and therefore does not add up to your liabilities.