Account receivables factoring is when you sell your company's accounts receivable (invoices) to release working capital immediately. It can be an extremely useful method for increasing cash flow, by making use of funds which you are owed before actually receiving payment. You will find that a financial services company can offer two different options, factoring and invoice discounting.

Factors will purchase your trade debts and collect these debts from your customers themselves. A quality factoring firm will collect funds in a professional manner, this means that the relationship between you and your customers should remain unaffected. Some factors also provide bad debt insurance, this can add extra security for your company's income.

When you use an invoice discounting service the responsibility for debt collection stays with you and in most cases your customers will not notice the difference. When using this service the payments that you receive are paid into a bank account that is administered by the invoice discounter, you will receive the balance after the charges incurred have been taken out. Invoice discounting is usually only available to businesses that have strong financial systems in place to make sure that their customers' payments will be reliable.

In the UK, both factors and invoice discounters typically pay between 80% and 85% up front against valid invoices. However there are some situations where a larger sum can be arranged, especially when a successful history has grown between the two parties.

When the factoring facility has been arranged there is no limit to the amount that can be borrowed because the level of finance is linked to the level of your sales. This means that as your business grows the amount of funding available to you also increases. This is quite different when compared to bank overdrafts as they require constant re-negotiation and arrangement fees.