Spot factoring, like regular factoring, is a way to advance the payment of an invoice. This type of financing is helpful when you are waiting for a large payment from a customer but need the money immediately. Spot factoring differs from other factoring services in the way that only one invoice is advanced, as opposed to a contracted amount. This lets your business factor on an as-needed basis. Find Your Perfect Loan - Free How Spot Factoring Works The money that a customer owes you is considered an “outstanding invoice” – also referred to as an “accounts receivables.” Depending on your business and the nature of your transactions, your accounts receivables may take up to 30 to 90 days to be paid off. Some companies' receivables take up to six months. For whatever reason, when you need the money before hand, a third party, called a “factor,” comes in and essentially purchases your outstanding invoice. From there, it is up to you to make sure the transaction is completed. Sometimes, depending on the service you choose, the factoring company itself might manage the invoice. Spot Factoring Rates and Terms First off, most factors typically pay up to only 90% of the receivables. With smaller sized deals, the payment is less. In addition, because spot factoring is technically not a loan, it is not bound by the government regulations that loans are bound by. Instead of interest rates, the factor charges fees of anywhere from 5% to 15% of the invoice. It is said that some companies have even charged 30% in fees. Pros and Cons of Spot Factoring Because factoring companies assume a lot of financial risk, their fees are quite pricey. In fact, it is one of the most expensive financing options. Traditional banks definitely offer better rates. However, factoring companies are less concerned about your credit score than other lenders; while banks turn you down based on overall creditworthiness, a factor will focus on the quality of an invoice itself. In the end, though, you're probably better off just waiting for the invoices. But, if your business really needs the money, spot factoring helps you get fast financing that other lenders are not willing to grant.