Spot Factoring vs Contract Factoring

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Spot Factoring vs Contract Factoring

Spot factoring agreements and contract factoring agreements are common in invoice factoring. Following this article, You should have a thorough understanding of the distinctions between spot factoring and contract factoring and whether one would be a better fit for your company.

What is spot factoring?

A spot factoring arrangement allows you, as the invoice seller, to pick and choose which invoices you sell. You are not required to sell any, but you may if you so choose.

What is contract factoring?

Contract factoring is exactly what it sounds like. You are signing a contract with the factoring company and agreeing to factor or sell a selected amount of invoices.

That could either be a specific number of invoices or a total dollar amount and even in some cases you’ll comply with factor all of your invoices. In that case, you don’t have any choice. As soon as you generate an invoice, you automatically factor or sell that invoice to the factoring company.

Spot Factoring vs Contract Factoring pros and cons?

There are pros and cons to both spot factoring and contract factoring.

First, we’ll look at spot factoring. Spot factoring the advantages you have a choice. You get to decide whether or not you want to factor in or sell those invoices to the factoring company.

The con or the exchange to doing so is usually the factoring company will advance less money and you’ll need to pay a better factor rate so you’ll find yourself getting less money up front and it’s going to cost you more to do so in exchange for having the choice.

Contract factoring does not give you the same freedoms or choices as spot factoring because you have an obligation to the factoring company. In exchange for that obligation or meeting whatever the threshold the contract determines, you’ll typically get extra money up front or a higher advance rate, and your factor rate or the fee you pay to factor those invoices will be lower.

Spot Factoring or Contract Factoring Which one is better for me?

Generally speaking, if you have a lot of slow paying customers or experiencing slow paying customers really frequently, a contract factoring agreement may be better for you because you have the peace of mind knowing that with each one of your invoices, you can receive a higher cash advance upfront.

if you just have a few slow-paying consumers or if your organization has an excellent collecting mechanism A spot factoring agreement may be a useful tool to have in your toolbox for the few times when you need it. Hopefully, you’ve learned a little bit more about the distinctions between spot factoring and contract factoring and which one may be best for your organization.

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