Spot factoring differs from traditional factoring in the sense that the factoring company generally assumes a greater degree of non-payment risk. In a traditional factoring model, the factoring company typically has a greater amount of funds held in reserve, has a greater amount of collateral in the form of other assigned accounts, and has a steady stream of invoices being submitted from the client. Accordingly, the effective cost of traditional factoring may be lower than spot factoring.

Spot factoring or single client factoring, by contrast, leaves the factoring company with very little collateral—often just a single account. Also, because the client is in control of which accounts and which invoices are presented to the factoring company, the factoring company has to be especially careful to accept only the accounts in which the factoring company has a great deal of confidence. The factoring company will conduct a thorough credit analysis of their client’s customer before proceeding to be confident in the customer’s creditworthiness and ability to pay their bill.

The same cautions can apply to some selective factoring situations and to individual invoices submitted by the client to the factoring company. Spot factoring offers maximum flexibility for the small business, but typically at a slightly higher cost per invoice. On the other hand, spot factoring may be substantially less costly than traditional factoring in some cases, since the client is only paying for what it needs as opposed to factoring all invoices and paying factoring fees that they don’t need to accrue or having to meet a minimum factoring amount.

Factoring companies are looking for clients with accounts that are creditworthy and show a history of on-time payment. Those accounts can be eligible for higher advances and lower factoring percentage rates. However, reliable factoring companies also frequently work with clients and customers with less than perfect credit records. If the invoices that you would like to submit for one-time factoring are not committed as collateral to someone else – if they are free and clear, then you could still be a good candidate for spot factoring regardless of customers’ past payment histories.

Not all factoring companies offer spot factoring and not all traditional factoring companies require the payment of a “minimum monthly fee” or maintaining a monthly minimum in submitted invoices. It’s always best to compare factoring companies before signing a factoring agreement.