1. There is no long-term contract: Most Factoring relationships will have a 6 month to an 18-month contract. This way you know you can get your needed working capital every week and the Factoring Company knows that they will be able to employ a certain amount of capital every week for your use.
2. Spot factoring is typically more expensive: Since it is a one time or infrequent transaction, the cost for the AR Factor to do its due diligence cannot be spread over the length of their contract with you. If they buy one single $50,000 invoice from you and they don’t foresee another transaction with you all costs of searches and credit checks must be covered in this single transaction. Because of this “one and done” component, implied risk per transaction is higher.
3. Fewer Invoice Factoring Companies offer this service: You like a client that stick around for awhile, right? So do most Factors. That is why the universe of Spot versus Traditional factors is smaller. You will have fewer choices to pick from if you decide Spot factoring is better for your situation.
4. Is your AR unencumbered? If you have a line of credit in place now or your accounts receivable are pledged in a UCC filing, this will make spot factoring even more difficult to qualify for. A traditional factor has an incentive to negotiate with your other lender on a subordination agreement or tri-party agreement to free up your Invoices so they can advance you working capital against them. This is a time consuming and costly proposition to undertake if they are doing just one transaction with you.
However, there is good news! Businesscash.com has been offering Spot Invoice Factoring since 1998 and we have a team dedicated to these type clients. If together we decide this is your best avenue then we want to help.