Advantages and Drawbacks of Single Invoice Finance

Single invoice financing, also known as spot factoring, is a type of factoring that allows you to finance a single invoice. The option to finance a single invoice, as opposed to the whole ledger, provides businesses with some advantages over conventional factoring plans. For more information, learn more about single invoice finance.

Advantages

Single invoice factoring plans have a number of advantages over other solutions. The most important advantages include:

#1 Flexibility. Select which invoices to finance

The most important advantage of a single invoice factoring plan is its flexibility. Your company has the option to finance only the invoices it needs to fund. There is no need to finance the whole ledger. You use the plan only when you actually need the funding. This flexibility provides you with direct control over your cash flow and allows you to closely manage your financing costs.

#2 Take on large clients or projects

Having to deal with a large customer – or project – is a common challenge for small and mid-sized businesses. The problem is that these projects usually consume your financial resources. This scenario leaves your company unable to wait 30 to 60 days for a payment.

A single invoice finance plan allows you to selectively finance these invoices, improving your cash flow and enabling you to better service the large client/project.

#3 Does not require your home as security

One important feature of factoring, unlike other types of financing, is that the main security for the transaction is your invoice. Most factoring companies do not ask you to pledge your home as security for the transaction.

#4 Offer net-30 to net-60 days to clients

One of the challenges of working with larger customers is that they often ask for net-30 to net-60 day payment terms. Unless your company has a cash reserve, offering terms can be difficult and lead to potential cash flow problems.

A factoring program helps your company offer payment terms. Terms give you the option to finance an invoice if you can wait for payment and need funds to pay business expenses.

#5 Available to small businesses with limited trading history

Lastly, one of the most important advantages of single invoice financing is that it’s available to small companies that have a limited trading history. The most important requirement to qualify is to work with creditworthy commercial clients who pay invoices in 30 to 60 days.

Drawbacks

However, these programs also have two disadvantages:

#1 Cost

The cost of a single invoice factoring transaction is higher than the cost of a conventional factoring plan. The reason for this cost is that the factoring company relies on having only one invoice to recover its costs and make a profit.

However, just because the cost on a per AUD basis is higher does not mean that the total cost of using a spot factoring plan is necessarily higher than a conventional factoring plan. In a conventional factoring plan, you must finance the whole ledger. This requirement adds unnecessary cost for companies that only need financing on a selective basis. Learn more about factoring costs.

#2 Notification

Lastly, factoring is a disclosed transaction. Your customer is notified of each invoice that you want to finance. However, factoring is a relatively common product and does not pose a problem for most customers.

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