28 Oct What is Selective or Spot Invoice Finance, and How Can It Help My Business?
If you’re running a business that relies on invoicing, you’ve probably had moments where cash flow gets a bit tight. You’re waiting on customers to pay their invoices, but in the meantime, you have payroll, suppliers to pay, and other bills stacking up. This is where selective or spot invoice finance comes in – it’s a flexible financing tool that can give you the cash you need without the long-term commitment or the hassle of a loan.
So, what exactly is selective or spot invoice finance, and how does it work?
What Exactly is Selective Invoice Finance?
Simply put, selective (or spot) invoice finance lets you sell a single invoice to a finance provider to get paid now rather than waiting for your customer to pay later. Unlike traditional invoice discounting, which might require you to sell all your invoices or sign a long-term contract, selective invoice finance gives you the freedom to pick and choose which invoices you want to get an advance on – only when you need it.
Here’s how it works in four quick steps:
1. **Pick an Invoice:** Choose a specific unpaid invoice you’d like to finance. Typically, you’d select one that’s high value or has a longer payment term.
2. **Sell it to a Finance Provider:** A finance provider buys your invoice and advances you a large portion of its value, usually between 70-90% (Some lenders will give 100% less their fee).
3. **Use the Cash Right Away:** The money hit your account, giving you immediate cash to cover whatever expenses you need.
4. **Customer Payment & Final Settlement:** When your customer finally pays, the finance provider takes their cut (a fee for the service) and sends you the remaining balance.
It’s straightforward, flexible, and a great solution for businesses that occasionally need a quick cash infusion but don’t want to take on long-term debt or finance their entire ledger.
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How Can Spot Invoice Finance Help Your Business?
Selective invoice finance has some great perks. Here’s how it could benefit your business:
1. **Flexible Cash Flow Boosts**
Cash flow ups and downs are normal, especially if you’re working on extended payment terms with your customers. With selective invoice finance, you can choose which invoices to fund and get cash when you need it most. Say you want to buy materials or invest in a new project without waiting for your customer to pay. By advancing funds from a large invoice, you free up cash that would otherwise be tied up for weeks or even months.
2. **Avoid Taking on Debt**
Because you’re selling an asset (the invoice) rather than taking out a loan, selective invoice finance doesn’t add debt to your balance sheet. This means you’re getting the cash without a new line of debt, which can be a huge relief, especially if you’re cautious about your debt-to-equity ratio.
3. **Complete Control and Flexibility**
You’re not locking yourself into a rigid, long-term agreement or paying for more financing than you need. Instead, you get to choose the specific invoices to advance, allowing you to control how and when you bring cash in. This is perfect for businesses with seasonal cash flow needs or anyone looking to avoid commitment-heavy financing options.
4. **Supports Growth Opportunities**
For any business looking to expand, having accessible funds is key. Selective invoice finance lets you quickly access cash that might otherwise be delayed, so you’re ready for whatever comes up. Whether it’s adding inventory, hiring staff, or pursuing a new project, selective invoice finance can help fund those growth moves without waiting on customers to settle up.
5. **Try before you buy**
Many clients who are considering taking out a full book Invoice Finance facility will initially try funding through Selective or Spot to enable them to try a facility first hand before taking the plunge and taking out a full facility.
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When to Consider Selective Invoice Finance
Selective invoice finance works well for businesses that:
- Have seasonal sales fluctuations or gaps between payment cycles
- Work with customers on longer payment terms (30, 60, 90 days)
- Need on-demand funding without a long-term commitment
- Want to fund specific invoices rather than an entire ledger
- Need access to cash quickly
- Operate in industries with big-ticket invoices, such as construction, manufacturing, or wholesale
That said, it’s usually best suited for larger invoices, where the fees make sense relative to the amount you’re getting. For smaller invoices, it might be less cost-effective.
Selective / Spot can be arranged for businesses at all stages and your business can access this even if the business or it’s directors have poor credit, CCJs etc
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Is Selective Invoice Finance Right for You?
If your business sometimes struggles with cash flow gaps or faces delays in getting paid, selective invoice finance could be a great fit. It’s designed to bridge the cash flow gap, giving you fast access to the funds you need to keep moving forward. With its flexibility, you get the benefits of a traditional loan without the commitment or debt on your balance sheet.
If you’re ready to give your cash flow a little breathing room and make sure you’re always ready to jump on new opportunities, selective invoice finance might just be the answer you’ve been looking for.
If you would like a discussion to see if Selective / Spot Invoice Finance is right for your business get in touch now.