A haulage firm lands a £45,000 contract from a national retailer, delivers it over three weeks, and is then told payment will arrive in 60 days. Fuel, drivers and trailer leases were paid long ago. Spot factoring exists for that moment: one invoice, one advance, one fee, and no further relationship with the provider once the retailer pays.
What spot factoring is
Spot factoring: a single-transaction factoring arrangement in which a business sells one invoice, or one batch of invoices to the same customer, to a finance provider for an advance. The provider collects payment and the arrangement ends when the invoice is settled. Also called single invoice factoring and spot invoice finance.
The mechanics are the same as conventional invoice factoring: the invoice is assigned, the provider pays a percentage up front, the customer pays the provider, and the balance less charges comes back to you. What differs is scope. There is no sales ledger to assign, no facility limit, no 12-month contract and no obligation to return.
Spot factoring should not be confused with selective invoice finance, a standing facility that lets you fund chosen invoices repeatedly. Some providers use "single invoice finance" for both, but a selective facility is cheaper per transaction once set up, while spot factoring avoids any set-up at all.
How a spot factoring transaction works
Submit the invoice
You send the provider the invoice, proof of delivery or sign-off, and details of the customer. With no existing facility, the provider also carries out its usual checks on your business.
The provider underwrites the customer
The customer's creditworthiness is the main question. The provider runs a credit check, sets the amount it will advance and confirms with the customer that the invoice is accepted.
Advance is paid
Once verified, the provider pays an agreed percentage, often 70% to 85% for a spot transaction. The customer is told to pay the provider rather than you.
Customer pays, transaction closes
The provider deducts its fee for the days the invoice was outstanding and pays you the remainder. There is nothing to cancel and no notice period.
How spot factoring is priced
Ongoing facilities split their charges into a service fee and a discount charge. Spot factoring usually collapses both into a single fee: a flat percentage of invoice value for the first 30 days, then a further charge for each additional 30 days, or a daily rate, until the customer pays. Published rates vary widely, but a flat fee of around 2% to 4% for the first 30 days is representative, with smaller invoices and weaker customers at the top of the range. Some providers add a fixed administration charge per transaction.
Illustrative example A £45,000 invoice on 60-day terms
- Invoice value
- £45,000.00
- Initial advance (80%)
- £36,000.00
- Fee for first 30 days (2.5%)
- £1,125.00
- Fee for days 31 to 60 (further 2.5%)
- £1,125.00
- Balance released when the customer pays on day 60
- £6,750.00
- Total received
- £42,750.00
Figures are illustrative estimates only and do not represent a finance offer. Pricing structures, advance rates and fees vary by provider and circumstances.
The haulage firm paid £2,250, or 5% of the invoice, to receive £36,000 roughly 55 days early. If that prevented a missed payroll, the cost is easy to justify; if it simply wanted the cash a little sooner, an overdraft might have been cheaper. Our guide to invoice factoring costs walks through the charges, and the factoring calculator lets you try different rates.
The speed versus cost trade-off
Spot factoring is the most expensive form of invoice finance per pound funded, for structural reasons. The provider has to underwrite your business and your customer for a single transaction, verify one invoice by hand and chase one payment, with no stream of future fees to spread that effort across. On a whole-ledger facility the same work is done once and amortised over hundreds of invoices.
What the premium buys is the absence of commitment: no minimum fee, no arrangement fee, no termination fee, no debenture. For a business that needs funding once a year, that trade is often worth making; for one that needs it every month, it almost never is.
A useful test: if you can see yourself funding more than three or four invoices in the next twelve months, ask providers about a selective facility as well. Set-up takes longer the first time, but each later invoice is cheaper and quicker to fund.
Who uses spot factoring
- Businesses with one unusually large order
A manufacturer or distributor that has fulfilled an order several times its normal size and cannot wait 60 or 90 days for payment.
- Young companies
Businesses too new for a whole-ledger facility, where the provider will rely on the strength of a blue-chip customer rather than the client's own trading record.
- Businesses facing a one-off cash event
A VAT bill, a deposit on new premises or a supplier demanding payment up front, where the timing clashes with a large receivable.
Will the customer know?
Almost always, yes. Spot factoring is a disclosed product. The provider contacts your customer to verify the invoice, and the customer is instructed to pay the provider's account rather than yours. Many large customers process the change of payee without comment, but it is a step some businesses are uncomfortable with, particularly where the relationship is new.
Confidential one-off funding is rare. A provider offering confidential invoice discounting relies on ongoing visibility of your ledger; a single transaction gives it none. If confidentiality matters most, a confidential selective facility is the closer fit.
Eligibility: the customer matters most
In a spot transaction almost all of the risk sits on one invoice, so the quality of the customer dominates the decision. Providers typically look for:
- A customer that is a limited company, PLC or public-sector body with a strong credit rating and a record of paying on time.
- An invoice for goods delivered or services completed, backed by a signed delivery note, timesheet or completion certificate.
- No dispute, right of set-off, retention or sale-or-return terms attached to the invoice.
- An invoice above the provider's minimum size, since the cost of underwriting is similar whatever the amount.
- A limited company or LLP as the client. Sole traders and small partnerships may fall under the Consumer Credit Act 1974 for smaller amounts, and many providers restrict them accordingly.
- No existing charge over your book debts, or a waiver from the lender holding one.
Construction applications for payment are commonly declined. The eligibility guide covers the invoice types providers find hardest to fund.
Limitations
Where spot factoring works well
- A genuine one-off gap between a large invoice and the bills it must cover
- No contract, notice period, minimum fee or debenture
- Open to businesses too new or too small for a whole-ledger facility
Where it falls short
- Highest cost per pound of any invoice finance product
- Full underwriting every time, so repeat use is slow and expensive
- Disclosed to the customer, with little scope for confidentiality
- Usually with recourse: an unpaid invoice comes back to you with the fee still due
Spot factoring, selective finance and full factoring compared
| Feature | Spot factoring | Selective invoice finance | Full factoring |
|---|---|---|---|
| Relationship | Single transaction | Ongoing facility, used when needed | Ongoing facility covering the whole ledger |
| Underwriting | Each transaction from scratch | Once at set-up, then per customer | Once at set-up, with periodic reviews |
| Pricing | Flat fee per period, highest per pound | Fee per invoice per period | Service fee plus discount charge, lowest per pound |
| Minimum fees and contract | None | Usually none; rolling terms common | Minimum fee and 12-month contract common |
| Customer notified | Yes | Usually, unless confidential | Yes |
| Best for | A single cash gap | Irregular funding needs | Continuous working capital need |
The factoring versus invoice discounting comparison explains the wider choice if a one-off transaction is not enough.
Have a single invoice you need to fund?
Tell us the invoice value, the customer and the payment terms, and we will explain whether a spot or selective arrangement is the more likely fit.
Frequently asked questions
What is the difference between spot factoring and single invoice factoring?
There is no real difference. Spot factoring, single invoice factoring and spot invoice finance all describe a one-off sale of a single invoice to a finance provider. The product to distinguish it from is selective invoice finance, which is an ongoing facility you can use repeatedly.
How much does spot factoring cost?
Usually a flat percentage of the invoice value for a fixed period, often 30 days, with a further charge for each period the invoice stays unpaid. Published rates are higher than for an ongoing facility because each transaction is underwritten from scratch. Any figure is illustrative until you have a written quotation.
Will my customer be told?
Almost always, yes. Spot factoring is a disclosed product: the provider verifies the invoice with your customer and asks them to pay the provider directly. Confidential one-off funding is rare because the provider has no ongoing relationship through which to monitor your ledger.
Can a new business use spot factoring?
Often, yes. Because the provider's main concern is the creditworthiness of your customer rather than your own trading history, spot factoring can be available to young businesses that would not qualify for a whole-ledger facility. The invoice must still be for completed, undisputed work to a creditworthy business customer.
What happens if the customer does not pay the spot-factored invoice?
Most spot factoring is offered with recourse, so if the invoice remains unpaid at the end of the agreed period you must repay the advance plus the accrued fee. Some providers offer non-recourse spot factoring at a higher price, which protects you if the customer becomes insolvent but not if the invoice is disputed.
Is there a minimum invoice size?
Most providers set one, because the cost of underwriting a transaction is much the same whether the invoice is £3,000 or £300,000. Minimums vary widely between providers, so ask before you apply.