However, there are alternative types of finance that will allow a business to automatically increase the amount of finance available as its sales increase.

Factoring and Discounting are two options for small to medium business to improve their cashflow. Both of these financial arrangements are primarily secured against the unpaid invoices of a business.

Factoring is the purchase by the Factor and the sale by a business of book debts on a continuing basis, usually for immediate cash. The sales accounting functions are then provided by the Factor who manages the sales ledger and collection of accounts under the terms agreed with the business. The Factor may assume the risk for accounts within agreed limits (non-recourse) or this risk may be retained by the seller (recourse).

Invoice Discounting is the purchase by the Discounter and the sale by a business of book debts on a continuing basis (occasionally selective) for immediate cash. The sales accounting functions are retained by the business. The debtor is unaware of the involvement of a Discounter.