Selective invoice finance, sometimes called single invoice finance or spot factoring, advances money against one invoice or a chosen few rather than against your entire debtor ledger. You decide which invoices to fund and when, with no obligation to bring the rest of the book to the facility. It sits alongside factoring and discounting in the invoice finance family, and it is the lightest of the three.
How it works
You issue an invoice to a customer as normal. You then submit that invoice to the funder, who verifies it and advances a proportion of its value, usually within a day or two once you are set up. When the customer pays, the funder takes the advance and its fee, and the balance comes to you.
Approval hinges on your customer's creditworthiness at least as much as your own, because the customer is the one who has to pay. A modest business invoicing a large, well-rated corporate is often a straightforward approval. The same business invoicing an unknown counterparty is not.
Whether the arrangement is disclosed to your customer varies by funder and by transaction. Some verify the invoice with the customer directly; others can operate confidentially. Ask before you sign if it matters to the relationship.
Who it suits
A business that has won a job much larger than usual and needs to fund materials and labour before the payment arrives.
A business with one slow-paying customer inside an otherwise healthy ledger, where committing the whole book to a facility would be disproportionate.
A seasonal business that needs invoice funding twice a year and does not want to pay for a standing facility for the other ten months.
A business that wants to try invoice finance before committing to a full arrangement. Funding one invoice is a low-cost way to find out whether the mechanics suit how you work.
What it costs, and why the comparison is tricky
Selective facilities are generally priced higher per invoice than a whole-ledger facility, because the funder is doing the same diligence over a much smaller exposure and has no volume to spread it across. Costs are usually a discount fee on the invoice value for the period it is outstanding, plus a transaction or setup fee.
The right comparison is not the per-invoice rate against a whole-ledger rate. It is total cost for the year. A business funding three invoices annually will almost always pay less on a selective basis than on a full facility with monthly minimums, even at a higher unit price. A business funding thirty will not.
Watch for minimum fees and minimum terms. Some selective products charge a minimum period regardless of how quickly the customer pays, which raises the effective cost substantially on an invoice settled early.
Where it stops being the right answer
If you find yourself funding invoices most months, the selective structure has become the expensive way to do something a full facility does more cheaply. That is the point to move to confidential invoice discounting or a factoring arrangement, depending on whether you want to keep the collections relationship. Invoice finance vs factoring vs invoice discounting sets out the differences.
If the underlying problem is that you are consistently short regardless of debtor timing, invoice finance of any kind is treating a symptom. That is a working capital or a profitability question.
And if the invoice you want to fund is in dispute, or is a progress claim under a construction contract with retention and certification conditions attached, most funders will decline it. Contract receivables carry conditions that ordinary trade invoices do not.
Selective finance against an overdraft
Businesses weighing a selective facility often already have, or could get, an overdraft. The two are not really substitutes. An overdraft is a fixed limit assessed against the business as a whole and reviewed annually; it does not grow when you win a large job, and it is repayable on demand.
A selective facility is assessed largely against your customer, so a single large invoice to a strong counterparty can be funded even where an overdraft limit would not stretch to it. That makes it useful precisely in the situation an overdraft handles worst: a one-off job much larger than your normal run of work.
The sensible pattern for many businesses is both. An overdraft for the ordinary weekly rhythm, and selective invoice finance available for the occasional job that sits outside it, so the overdraft limit is not consumed by a single transaction.
What to have ready
The invoice itself, evidence that the goods were delivered or the work completed and accepted, your terms of trade, and details of the customer. Funders will also want to know whether any other party already holds security over your receivables, because a general security agreement given to another lender can prevent an invoice being funded elsewhere.
Where to from here
We arrange selective invoice finance and the full invoice and debtor finance range across our whole lender panel, and we will tell you when funding one invoice is genuinely cheaper than a facility. There are no fees to clients; the lender pays us when the finance settles. Book a 20-minute brief.
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