Spot factoring allows businesses to improve their cash flow position by selling a single invoice to a third party known as a ‘factor’. This works in a similar way to a standard invoice factoring agreement, where invoices are regularly ‘sold’ to a factor, but offers distinct advantages for certain types of businesses.

How does it work?

The spot factoring process is quick and simple:

  • Having agreed rates and fees with a factoring provider, the business then chooses an invoice to raise funds against. This will typically be a relatively large invoice of upwards of £25,000.
  • The factor then verifies the invoice by checking the creditworthiness of the customer. Once it is confident the payment will be made, the factor will then pay the business an advance of around 85 percent of the invoice’s value.   
  • Once it is time for the customer to pay the invoice, the factor will collect the payment and make the remaining value of the invoice available to the business, minus its fees.

Is spot factoring right for your business?

If your business completes business-to-business (B2B) or business-to-government (B2G) work, carries out relatively large-scale projects, doesn’t require a constant source of working capital and only has a few customers, spot factoring could be perfect for you.

In this case, it will provide a quick and reliable way to obtain cash advances on your invoices and allow you to inject significant amounts of cash flow into your business, without taking on more debt. It’s also important that your customers are creditworthy and have a reputation for paying on time.  

What type of businesses can spot factoring help?

The advantages associated with spot factoring make it perfectly suited to specific types of business. For example, seasonal businesses that don’t need finance all year round but have variations in sales from month to month can benefit. Businesses that take on large projects that take time are also well suited to this type of agreement, as are those that have just one or two large debtors.

What are the benefits of spot factoring?

Spot factoring has a wide range of benefits for qualifying businesses. That includes:

  • No long contracts – Spot factoring allows you to access cash on your own terms without entering into a long contract. That means no minimum limits and no ongoing fees.
  • Quick access to cash – Once the rates and fees have been agreed, cash can be released by the factor extremely quickly.
  • Flexibility to access cash on your terms – You get to choose what invoices to factor and when to submit them for payment.  
  • Access to a large amount of cash – You can give your business a significant cash flow boost to invest in new projects, run payroll and grow your business.
  • No setup fees – Many spot factors will not charge a setup fee for the service they provide.
  • Low-risk – The process is relatively low-risk. The factor advances the money based on work already completed and you gain access to working capital without taking on a debt.
  • No security is required – Many spot factoring providers will not ask for any security other than the invoice itself.  
  • You don’t need an impeccable credit rating – The factor is more interested in the creditworthiness of your customer so it doesn’t matter if you have adverse events on your credit record.  
  • Not much paperwork to complete – The process can be completed quickly so you can concentrate on growing your business.
  • The factor will collect the debt – The spot factor will credit check the customer and collect the payment so you don’t have to worry about this time-consuming task.

Get a quote

Does spot factoring sound like an appropriate solution for your business? You can compare quotes from the UK’s spot factors to find the best deals or call 08000 24 24 51 to discuss your business’s needs.