Spot factoring is a type of selective invoice finance that allows businesses to quickly access funds from specific invoices which have been raised to customers.
Rather than handing your entire sales ledger over to an invoice factoring provider, spot factoring allows businesses to choose individual invoices which they wish to advance, offering greater flexibility at competitive rates.
As a way for businesses to convert their accounts receivable (unpaid invoices) into immediate cash. In traditional factoring, a business sells its outstanding invoices to a third-party financial institution (a factor) at a discounted rate. The factor then takes on the responsibility of collecting payment from the customers.
Spot factoring, also known as single invoice factoring or spot invoice financing, is a more focused version of traditional factoring. Instead of committing to an ongoing relationship, a business can choose to factor individual invoices on a case-by-case basis. This gives businesses greater flexibility and control over which invoices they want to factor, allowing them to manage their cash flow in a more tailored manner.
Spot factoring is an easy way to access cash owed to you in invoices. Here’s how it works:
Spot factoring gives you the freedom to choose which of your invoices you'd like to advance. Whether you need to draw from a smaller invoice to tide you over in the short term or a larger payment to help fund your next big project, you'll be able to manage your cash flow with pinpoint accuracy.
Spot factoring can be a very quick process. Once the factoring company approves the invoice, you can receive funds within a short period, often a matter of days.
Spot factoring companies often specialise in working with businesses from specific industries such as construction, recruitment, automotive, import/export, manufacturing and more. We'll match your business with lenders who have a proven track record in successfully delivering spot factoring to your sector, giving you the peace of mind that comes when working alongside an experienced industry expert.
Spot factoring companies offer credit control and sales ledger management as part of their financing package. Rather than having to chase up invoice payments and credit check your latest clients, these lenders will take over these time consuming tasks, leaving you to focus on what matters most.
Spot factoring is only suitable for companies that raise invoices to other businesses, so might not be suitable for companies that operate as business-to-consumer, such as ecommerce, retail, or merchant businesses.
You might opt for spot factoring if there are large disparities between the value of the invoices you’re raising, or if only some of your customers have long payment days.
It is particularly useful for businesses that experience fluctuations in cash flow due to delayed payments from customers.
Spot factoring is great for both large and small businesses as it offers far greater control over your cash flow, helping you to quickly access funds that can be used for stock purchases, staff wages, marketing, advertising, or just about any other business purpose.
Yes, your customer will be informed when you use spot factoring. As part of the process, the spot factoring company often contacts the customer to provide payment instructions. This transparency helps ensure a smooth payment collection process.
Yes, one of the key advantages of spot factoring is that you have the flexibility to select specific invoices to factor. This allows you to manage your cash flow strategically and address urgent financial needs.
Most businesses that operate on a business-to-business (B2B) model can use spot factoring, provided they have outstanding invoices from creditworthy customers. However, eligibility and terms may vary depending on the spot factoring company's criteria.
If the customer fails to pay the invoice, the factoring company may either request repayment from the business or assume the risk, depending on the type of factoring agreement. Non-recourse spot factoring means the factoring company assumes the risk of non-payment, while recourse spot factoring means the business is responsible for repaying the advanced funds if the customer doesn't pay.