What is Spot Factoring?

Spot factoring, also known as single-invoice factoring or selective factoring, is a financial arrangement where a business sells individual invoices to a factoring company rather than factoring all of its accounts receivable. This type of factoring provides flexibility for businesses to obtain immediate cash flow on an as-needed basis without committing to a long-term contract or factoring all their invoices.


Key Aspects of Spot Factoring:

  1. Selective Approach:
    • In spot factoring, the business selects specific invoices to factor, typically those with higher values or those from customers with longer payment terms. This allows the business to manage its cash flow needs more precisely.
  2. Immediate Cash Flow:
    • The business receives a cash advance for the selected invoice, usually a percentage of the invoice value (typically 70-90%), from the factoring company. The remaining balance, minus the factoring fee, is paid to the business once the customer settles the invoice.
  3. No Long-Term Commitment:
    • Unlike traditional factoring arrangements, which may require a business to factor all its invoices for a specified period, spot factoring does not involve long-term commitments. The business can use this service as needed, offering greater flexibility.
  4. Factoring Fee:
    • The fee for spot factoring is usually higher than for traditional factoring due to the increased risk and administrative effort involved in handling individual invoices. The fee is typically a percentage of the invoice value and is agreed upon at the time of the transaction.
  5. Credit Risk:
    • Depending on the agreement, spot factoring can be either recourse or non-recourse. In recourse factoring, the business retains the risk of non-payment, whereas in non-recourse factoring, the factoring company assumes the credit risk.
  6. Application Process:
    • The business submits the selected invoice to the factoring company, which then verifies the invoice and the creditworthiness of the customer. Once approved, the factoring company provides the advance payment.


Example of Spot Factoring:

A business has an outstanding invoice of $50,000 with a customer who has 60-day payment terms. To improve cash flow, the business decides to use spot factoring for this invoice. The factoring company agrees to advance 80% of the invoice value with a factoring fee of 3%.

  • Invoice Value: $50,000
  • Advance Rate: 80%
  • Factoring Fee: 3%



  • Advance Payment: $50,000 × 80% = $40,000
  • Factoring Fee: $50,000 × 3% = $1,500
  • Remaining Balance: $50,000 – $40,000 – $1,500 = $8,500

In this scenario, the business receives an immediate advance of $40,000. Once the customer pays the invoice, the factoring company deducts the $1,500 fee and remits the remaining $8,500 to the business.


Advantages of Spot Factoring:

  1. Flexibility: Businesses can factor invoices on an as-needed basis without a long-term commitment.
  2. Improved Cash Flow: Provides immediate access to funds, helping businesses manage cash flow and meet short-term financial obligations.
  3. Selective: Businesses can choose which invoices to factor, typically selecting those with longer payment terms or higher values.
  4. No Obligation: Businesses are not obligated to factor all their invoices or enter into a comprehensive factoring agreement.


Disadvantages of Spot Factoring:

  1. Higher Fees: The cost of spot factoring is generally higher compared to traditional factoring due to the increased risk and administrative effort.
  2. Creditworthiness Requirement: The factoring company will assess the creditworthiness of the customer, which may limit the invoices that can be factored.
  3. Limited Scope: Spot factoring may not be suitable for businesses that need consistent and ongoing cash flow support.



Spot factoring is a flexible financial solution that allows businesses to selectively factor individual invoices to meet their immediate cash flow needs. By understanding the costs and benefits, businesses can use spot factoring to manage their finances more effectively and ensure they have the necessary funds to support their operations.

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