Spot Factoring vs. Contract Factoring: Which Is Right for Your Business?

What Is Spot Factoring?

Spot factoring (also called selective factoring or single-invoice factoring) lets you factor individual invoices on demand—no commitment to factor every invoice, no monthly minimum, no exclusivity.

You pick a specific invoice from a specific customer, submit it, and receive an advance. When done, you're done. No ongoing obligation.

Best for: Businesses that need occasional cash flow boosts but don't have a consistent volume of invoices to factor. Also useful for businesses that want to factor invoices from specific customers while self-collecting on others.

What Is Contract Factoring?

Contract factoring commits you to factor a defined volume of invoices—often all invoices—through one factoring company for a set period (typically 12–24 months). In exchange, you get lower rates, higher advance rates, and better service.

Best for: Businesses with consistent monthly invoice volume who want the best rates and are willing to commit to a factoring relationship.

Most traditional factoring products are contract factoring. When people say 'invoice factoring,' they usually mean this model.

Cost Comparison

Spot factoring costs more per invoice:

- Spot: 3%–6% per invoice

- Contract: 1%–3% per 30-day period

The premium reflects the factor's higher risk and setup costs when you're not committing to ongoing volume.

For occasional use, the spot premium is worth it. For businesses factoring $50,000+/month consistently, contract factoring's lower rates deliver significant savings over time.

Break-even example: If you factor $100,000/month, a 1.5% difference between spot and contract = $1,500/month or $18,000/year. A contract is worth it at that volume, even with an early termination fee.