Invoice factoring vs. Spot factoring

What is the Difference Between Invoice Factoring and Spot Factoring?

Spot factoring is a financing term used to describe the process of factoring one invoice when quick capital needs to be raised. This is different from a traditional invoice factoring, where a business will factor their entire accounts receivable on a monthly basis in order to preserve their regular cash flow. Spot factoring is more expensive than invoice factoring because the factoring company takes on a higher risk purchasing one-off invoices from companies they aren’t necessarily familiar with.

For further illustration, look at a company who factors invoices on a monthly basis. Odds are the majority of their invoices are generated by repeat customers. The factor has a good idea as to whether or not the invoices are collectible or not and will offer to purchase them at a lower rate than those who choose to spot factor invoices. While the creditworthiness of the customers may be the same, there is no payment history established by the customers of companies who choose to spot factor and therefore these customers represent a higher risk. Companies who provide spot factoring offset the risk by charging higher premiums for these invoices. Spot factoring rates can be as high as 20%. So if you have a $10,000 invoice, it could cost you $2000 to get $8000 in cash. This is why regular invoice factoring is a more cost effective form of financing. Universal Funding’s factoring rates start as low as 0.55%.