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What's the difference between spot factoring and invoice factoring?

Spot factoring and invoice discounting are the same thing.  Spot factoring and invoice factoring are not the same thing.  True spot factoring is rare. 

With spot factoring, the difference is that, again, the small business in not getting locked into a contractual relationship.  The spot factor is not going to penalize them for every little thing.  There is one rate, a daily rate, that they get charged.  There's no looking at fees and trying to figure out what they are going to have to pay and trying to figure out whether they’re going to get penalized this month and whether they’re meeting the minimums for the factoring line this month, none of that. You have an invoice.  You sold it to the spot factor.  There is a daily rate.  The business pays the daily rate up to the date the customer pays us.  That's it.

With a standard factoring, or invoice factoring agreement, the small business usually has to put money up front, which they often don't have.  We’re talking about $2,000 to $3,000 lying around to pay up front.  Secondly, the small business has to get into a contractual relationship for at least a year where they are committed, and has to reach a minimum of around $50,000 in invoicing to be funded every month.  Many small businesses don’t have that volume on a consistent basis.  So, if they don't fund the $50,000, all of a sudden they have been penalized for that month, and they have to pay a fee.

Small to medium sized business can't afford that kind of pressure. That’s where spot factoring can really help them out.


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