Spot factoring

If your company offers 30 to 60-day payment terms to customers and you're having trouble waiting for cash, you can take advantage of spot factoring. It's a unique financing facility that funds a large portion of your invoices upfront and, in many cases, in as little as 24 hours.

Spot factoring companies can offer anywhere between 80-90% of your invoice amount upfront. The remaining balance, minus fees, is given to you once the customer pays the invoice. Unlike traditional factoring where you'd provide all your invoices for financing, spot factoring allows you to finance an individual invoice or a single batch of invoices.

Compare a range of invoice finance options

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5 Standard Westpac Vehicle and equipment finance	5 Standard	$15,000	No maximum amount	1 to 7 years	Upon application		Finance your business vehicle or equipment with this loan, tailored to your business needs. Flexible repayment options available and this loan is secured against the asset purchased.	ContinueView details Compare product selection Compare	loading
6 Standard ANZ Vehicle and Equipment Finance Most Loved	6 Standard	$7,500	$500,000	1 to 7 years	No establishment fee		Borrow from as low as $7,500 to fund your business vehicle and equipment needs. This loan is secured against the asset purchased and approved customers may be eligible to avoid paying a deposit.	ContinueView details Compare product selection Compare	loading
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How does spot factoring work?

Spot factoring can only be used by companies that provide 30- to 60-day payment terms to customers. It can be a source of funding to consider when you need quick access to cash for lumpy trading periods, unexpected growth opportunities or emergency situations such as making repairs or covering payroll.

First, spot factoring companies verify each invoice you submit by looking at the creditworthiness of the customer (called a "debtor') paying the invoice. The invoice must be payable within 30-60 days. Once you agree on fees and terms, you'll receive your funds at about 80% of the total invoice amount. The spot factoring company will also provide debt collection services.

Once your customer pays the invoice to the spot factoring company, you'll receive the remaining amount of the invoice (usually 20%), minus fees and charges.

How to compare spot factoring options

Here are the main points of difference when looking at spot factoring options:

• Advance rate. Also called a factor rate, this is the amount the spot factoring company will pay off your invoice and is expressed as a percentage. An 80% advance rate would mean you'd get 80% of the invoice amount upfront.
• Service fee. This is a one-time fee charged on every invoice you submit for financing. The fee is based on the total value of your invoice and can be anywhere from 0.1% to 20%.
• Discount rate. This is a fixed percentage rate charged on your advanced funds. It's calculated daily and charged every month. It can range from anywhere between 2% to 10% of the total amount advanced to you.
• Due diligence/document fees. These are initial setup costs for the spot factoring company to cover credit checks and other work needed to advance funds. These can be anywhere from a few hundred to a few thousand dollars.
• Other fees. There may be other ad hoc fees associated with your factoring facility. Make sure you're aware of all the fees associated with each option you're considering.

What are the pros and cons of spot factoring?

Is there anything to avoid?

Keep in mind the following pitfalls if you're considering spot factoring:

• Paying more than you can afford. Since spot factoring can be expensive, make sure you're fully aware of all fees and charges. Once you figure out the costs involved, conduct a cost-benefit analysis to see if you can afford it. Also, be aware of other traditional financing options such as short-term loans or a business line of credit.
• Using spot factoring as an ongoing source of funding. Because of the way spot factoring is set up and the costs associated with it, you should not use spot factoring if you have ongoing requirements for finance, such as on a monthly basis. Instead, use spot factoring when you urgently require funding for a one-off situation like taking advantage of a business opportunity or trying to make payroll.

FAQs about spot factoring

• Can I use spot factoring for progress claims in the construction industry?

  No, most Australian spot factoring providers require the work to be fully completed and a final invoice issued before they will provide funding. Lenders generally avoid progress claims or stage payments because they carry higher risks of disputes, retentions and offsets which can complicate the collection process.

• Is spot factoring confidential or will my customers be notified?

  Most spot factoring arrangements in Australia are disclosed, which means your customers will be notified to pay the lender directly. While some providers offer confidential options for larger businesses, standard spot factoring usually involves the lender verifying the invoice with your customer and managing the collection process.

• Is there a minimum invoice value required for spot factoring?

  Yes, many Australian lenders set a minimum invoice value, which typically ranges from $2,000 to $5,000 per transaction. Because of the administrative work involved in verifying individual invoices, lenders find that smaller amounts are not cost-effective to process for either party.

• Do I need a high business credit score to qualify?

  No, the lender focuses primarily on the creditworthiness of your customer rather than your own business credit score. Because the invoice itself acts as the primary security for the advance, even startups or businesses with a limited credit history can often access spot factoring if they have reliable, blue-chip debtors.

• What is the difference between recourse and non-recourse spot factoring?

  Recourse factoring requires your business to buy back the invoice or repay the advance if your customer fails to pay, whereas non-recourse factoring protects you if the customer becomes insolvent. Non-recourse options are less common for spot factoring in Australia and generally attract higher fees due to the increased risk taken by the lender.

Written by

Elizabeth Barry

Journalist

Elizabeth Barry is an experienced journalist with over 10 years of expertise in personal finance, contributing to outlets like the ABC, Sydney Morning Herald, and 7News. She holds a Master of Arts in Creative Writing and a Bachelor of Arts in Communication from the University of Technology Sydney, and has earned multiple award nominations, including a Highly Commended recognition at the 2017 Lizzies. Elizabeth began her career at Finder in 2013, progressing through roles to become Lead Editor, where she oversaw a wide range of personal finance coverage until 2024. See full bio

Elizabeth's expertise

Elizabeth has written 185 Finder guides across topics including:

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