What is spot factoring?
Spot factoring is a transaction-based form of invoice finance. You sell a single invoice, or a small batch of invoices, to a finance provider in exchange for an immediate cash advance. There is no requirement to commit your entire sales ledger or enter a long-term facility agreement.
The term 'spot factoring' is sometimes used interchangeably with 'selective invoice finance' or 'single invoice factoring', though there are subtle differences between providers in terms of structure, notification requirements and fee models.
How spot factoring differs from whole-ledger factoring
Traditional factoring involves assigning your entire sales ledger to a factor, who then manages credit control across all your customers. Spot factoring is selective. You choose one invoice or a small number of invoices to finance, and the rest of your ledger is unaffected.
This means your other customers continue to pay you as normal, and you are not required to notify all your customers that you use finance. Only the customers whose invoices you choose to spot factor may be notified.
Costs of spot factoring
Spot factoring is typically priced as a flat fee percentage of the invoice value, often between 2% and 5%, depending on the invoice size, debtor creditworthiness and the provider. Some providers charge a daily or weekly rate for the period the invoice remains outstanding. There is no monthly service charge as there would be with a whole-ledger facility.
Eligibility
- UK limited company or sole trader
- B2B invoices for completed goods or services
- Invoice value typically above £5,000
- Creditworthy end customer (provider will assess debtor credit risk)
Frequently Asked Questions
Can I spot factor invoices from any customer?
No. The finance provider will assess the creditworthiness of the customer whose invoice you want to factor. Invoices owed by customers with poor payment history or financial difficulties may not be eligible.
Do I need to notify my customer that I am spot factoring their invoice?
Most spot factoring arrangements are disclosed, meaning your customer will receive payment instructions directing them to pay the finance provider. Some non-notification arrangements exist but are less common for spot facilities.
Is spot factoring suitable for sole traders?
Some spot factoring providers do work with sole traders, though the market is wider for limited companies. Eligibility depends on the provider and the creditworthiness of your debtor.