How Much Does Single Invoice Discounting
or Spot Factoring Cost?

With a traditional invoice discounting facility, the fees include interest on the drawn facility limit, a line fee and the management fee or discount fee on the individual invoice. Because spot invoice discounting is by definition on an invoice by invoice basis there is no line fee or interest rate – the entire cost of the financing is captured in the discount fee. As a result of this, and because of the fact that there is typically more risk in single invoice discounting, the discount fee for spot factoring is usually higher than for traditional debtor finance facilities.

To determine whether or not spot factoring is cheaper than a traditional
debtor finance facility the business owner will need to add up all the costs
associated with the debtor finance facility and compare it to the costs of the
spot discounting fees.

Spot factoring providers, like traditional debtor finance providers, charge discount fees on a sliding scale whereby the longer the invoice remains outstanding the higher the fees. Single invoice discounting fees for a 30 day invoice can vary from 2% up to 7% depending on the nature of the counterparty, the inherent risk in the invoice payment and the credit quality of the business selling the invoice.

When Should Single Invoice Discounting or Spot Factoring be used?

Single invoice factoring is typically a preferred option over traditional debtor finance in the following situations:

• The set up costs and ongoing costs associated with a traditional debtor finance facility make the facility more expensive than if the business was to sell individual invoices;
• The business wishes to maintain control over their accounts receivable book;
• Where the need for invoice financing is lumpy or sporadic or when the business owner wish to choose the exact timing of utilising such a facility

Things to Watch Out For

Costs: The costs on single invoice factoring can be high. Business owners may wish to compare the financing cost to other financing products such as Business Overdrafts or Flexible Term Loans as an alternative.

Timing: Some spot factoring companies look to insure the invoices that they purchase. This can add to the timeframe for you to receive cash against the invoice.