What is selective invoice finance?

Selective invoice finance explained

Selective invoice finance is quite different to the other forms of invoice finance, for a few reasons. First, it doesn’t involve an agreement for the whole sales ledger — you choose which invoices you’d like to have advanced. That gives you flexibility to adjust your cashflow position by selling single invoices or choosing a few at a time, depending on your business needs.

Second, because you’re financing individual invoices you generally get advanced more. With selective invoice finance it’s not uncommon to be advanced 100% of the invoice value and then pay a fee, so transactionally it’s simpler than invoice factoring or invoice discounting.

Most importantly, with single invoice finance the lender’s risk depends on your customers rather than your own business — which means it’s aimed at established businesses that trade with creditworthy customers. For example, if your business has a healthy turnover, many years of trading history, and invoices large multinationals, single invoice finance should be viable. On the other hand, a startup trading with other SMEs will most likely have to look at other forms of invoice finance like factoring.

How does spot factoring work?

Spot factoring is often used as a synonym for selective invoice finance, but the two terms can mean different things.

In some contexts, ‘spot factoring’ is the name given to choosing specific invoices to finance, and ‘selective invoice finance’ refers to selecting specific customers whose invoices you’ll finance.

However, the two terms are not used consistently in the market, so this page refers generally to any type of invoice finance that offers flexibility for what portion of your sales ledger you choose to finance.

Selective invoice finance can be a great arrangement for eligible businesses with unpredictable cash flow cycles, because how much or how little you finance is in your hands (unlike other facilities, which finance the whole sales ledger by default).

Another key advantage of single invoice finance is that there’s no lengthy contract with this type of facility, so you’re not committed for a set period of time. Overall, it’s a useful option for businesses with irregular sales, or a mixture of large and small customers, but it can be difficult — or impossible — for smaller companies to access.