What Is Spot Factoring for Trucking Companies?
Spot factoring, also called single invoice or selective factoring, allows you to factor your invoices on an invoice-by-invoice basis. It’s ideal for trucking companies since you can control the number of invoices to factor when you have a cash flow need, but you are not locked into any minimum requirements.
The alternative, offered by some freight factors, forces you to factor all the invoices for a specific customer once you factor any invoices for the customer. This can cost you extra in fees when you have to factor an invoice, but don’t really need to. On the other hand, spot factoring keeps you in control of the factoring process and allows you to use it only when you need short-term working capital.
Factoring and Billing
Many of the trucking factors that provide single-invoice factoring also bill and process the payments of your customer’s other invoices for a flat fee. This practice is similar to other freight factors, but you are not charged the factoring fee on the non-factored, but billed invoices. Also, you do not receive an advance against these invoices. Instead you get 100% of the invoice when the bill is paid.
Here is how the process would look if you had two $5,000 invoices from the same customer and you choose to factor one and bill the other. On the factored invoice, you receive an 80% advance, normally the same day, and the factor holds 20% in reserve. You get the remainder of your reserve, less the factoring fee (usually 1% to 3%) once the invoice payments exceed the advanced 80%. The other $5,000 invoice costs you a flat rate (around $5) for billing, processing and collecting payment, but you do not get paid until the bill is actually remitted (no advance).
Spot vs. Traditional
The only real negative to single-invoice factoring versus more traditional freight factoring with minimum requirements is you may end of paying a higher percentage in fees on smaller valued invoices with the spot factoring. Normally the higher dollar volume of invoices you factor, the more room you gave to negotiate your fees, rates and terms. So you’ll still need to shop around and compare terms and rates from both kinds of factors to figure out which is best for your trucking operation.
If you plan to use factoring periodically, you’ll probably come out better with single invoice factoring. If you plan to use factoring consistently as a part of your ongoing financing strategy, you may get better rates by committing to a minimum dollar amount of invoices each month. Factoring companies do vary as do your due diligence.
We’d be happy to help you out. Contact us with the details of your situation and we can help you find the best factoring arrangement for your transportation operation.