What is spot factoring?

Are you facing a gap in cash flow while also waiting on payment from your customers? Spot factoring could be the ideal solution for your business. You can pick and choose the invoices you’d like forward-funded, so your business is free to take its next steps.

Spot factoring is a type of invoice finance that can help you get the funding you need to run your business. No matter if you’re facing short-term cash flow concerns or want to fund long-term growth plans, this could be the most effective way to get the finance you need. With this type of finance, you can ‘sell’ as many of your invoices to spot factoring companies. In exchange, you’ll get a cash advance that is equal to a percentage of the total value of your invoice(s). This is generally 75-85% but can sometimes be up to 100%, depending on the terms you agree with your provider.

The best part about spot invoice factoring is that you get to decide the invoices you’d like to fund. You won’t have to give up your entire sales ledger. And you can be much more flexible with the level of funding you receive. You can also leave the admin to your chosen provider. They’re the ones that’ll make sure your invoices are paid – not you. For more information, read our ‘What is invoice factoring?‘ blog.

What can spot factoring be used for?

There are no specific requirements when it comes to spot factoring. It’s essentially your money that’s tied up in unpaid invoices. Much like our invoice financing solution, there are many ways to use that cash as a business.

Working capital

You might turn to spot factoring out of short-term need. Are your outstanding invoices causing cash flow concerns? Need funds to pay staff, buy stock, or cover bills? Using spot factoring may just be the right option at the right time to ease those worries.

Growth and expansion

You don’t need to be up against it to apply for spot factoring. You could have long-term aims to achieve. And you won’t get there by sitting around doing nothing. Rather than save up or see if you can get a bank loan, spot factoring could give you the finance you need to invest now.

How does spot factoring work in the UK?

Are you waiting for customers to pay your business? It can be a frustrating and time-consuming process. And it can put a real strain on your day-to-day finances too. But you don’t have to wait to get the finance you need. Spot factoring companies can support you.

So, how does it work?

−       First, choose the invoice(s) you want to fund. It can be one or more from your ledger – with a total value of at least £100,000.   

−       Next, agree the terms with your provider (including fees and charges).

−       Once they receive and verify the invoice(s), they’ll advance you a percentage of the value owed.

−       As soon as your customer(s) pays the invoice(s), your provider collects that amount and forwards the remaining balance to you – minus the fees and charges agreed before.  

Spot factoring is as simple as that. Get the cash you need when you need it. And your provider does all the admin involved in getting your invoice(s) paid too, so you can focus on what you’re good at.

Is spot factoring the right option for me?

For SMEs across the UK, spot factoring could seem like an attractive option – especially when cash flow is drying up or growth opportunities are passing you by because of late payments.

But is it the right option for your business?

One key thing to know is that spot factoring is usually only available if individual invoices are worth a larger amount – generally £50,000or more per invoice.

For smaller amounts, you might find that another one of our alternative finance solutions is a better fit. Why not get in touch and talk to one of our specialists about your specific needs? 

Am I eligible for spot invoice factoring?

It depends. Some spot factoring companies will have different criteria to others. But the main thing that will determine if you’re eligible is the value of your invoices.

Unless they’re worth a minimum amount (each), it’s likely you won’t be able to apply.

Spot factoring FAQs

What are the potential benefits of spot factoring?

Not sure if spot factoring could be the most effective funding solution for your business? There are several benefits to choosing this route if it does work for you.

First, it can help you release funds that you’re owed from one or more unpaid invoices. You’ll get a percentage of that amount much sooner than if you waited for the customer to pay. This can be especially helpful if you’re struggling with short-term cash flow, for example.

You’ll also be able to pay your suppliers on time or take advantage of new growth opportunities as they emerge. And don’t forget that you’ll no longer have all the hassle of chasing customers for payment. That’s what spot factoring companies are there to do.

Spot factoring: What do I need to consider?

The main thing to consider with spot factoring is the size of the invoice(s). If yours aren’t large enough, spot factoring won’t be an option for you.

If they are, however, spot factor costs can work out more expensive on a per-invoice basis. So, another finance option may be more cost-effective.

One other potential disadvantage is that you’ll be handing over your responsibility for payment collection to your provider. This could affect your relationships with customers. After all, it isn’t going to be you they’ll be dealing with when it comes to paying.

How long does the process take?

It takes around one month from the start of the process until you receive your funds. But it can be faster or slower than this depending on your circumstances.

The main obstacle can often be getting access to documents that a provider needs to do all the necessary checks. It’s essential to be upfront with the lender when you apply for spot factoring. If all your documents are in order and ready to go, it should speed up the process for you.

And, once you’re on board, you’ll get access to your funds within 24 hours.

Do I need to provide any security?

No, not usually. The invoices you choose to fund are normally considered to be an asset. So, all that’s needed as security over them is a charge known as a debenture.

In some cases, you may need to provide extra security. This could depend on the size of your facility and your business.

What if spot factoring isn’t right for you?

Unlike spot factoring companies, Nucleus offers a range of alternative funding solutions for your business. And we’re more than happy to help you work out which is best for you. Get in touch, speak to one of our experts, and start planning a brighter tomorrow for your business.