Among the reasons why invoice discounting is not as widely used as it might be is the negative perception of a different form of finance, credit factoring, which has prevailed over the years. The two are often confused, but they are very different products.

Invoice discounting provides a company with cash against invoices raised to trade debtors. The company continues to manage the sales ledger, credit control and collections function.

However, with credit factoring, the factor provides a business with cash against invoices to trade debtors, and manages the sales ledger, credit-control function and the collection of invoices.

In the past this was viewed very negatively, and for good reasons in many cases. It was seen as akin to "selling a debt" at a sometimes very high discount and was viewed as an act of desperation. In some instances it involved creditor companies passing difficult or bad debts on to a third party who would pay a fairly small proportion of the invoice amount to the company involved. The factor took on complete responsibility for the collection of the debt and kept the difference between what they paid the creditor company and what they managed to recover.

Attitudes are beginning to change, however. Companies operating in today's marketplace no longer worry about customer knowledge of third-party involvement and credit control outsourcing is now viewed as relatively normal. Just as a company might outsource its payroll or customer support operations, it can now outsource credit management.

Factoring can be very useful for situations in which a company needs to improve cash flow, but does not qualify for invoice discounting. It is also useful for companies looking to outsource their credit-control function.

In addition, specialist factoring companies, such as Enterprise Finance Europe, also carry out sales ledger management, performing all aspects of credit control for client companies, using expert collections software and a team of professional credit controllers. As part of this service, these specialists maintain all sales ledger records and remit statements of account to clients' customers at each month end.

Factoring has also changed in other ways. While there is still a service charge for the sales ledger management and credit control services the actual cost of finance is much more in line with invoice discounting.

For young or high growth companies without the resources to maintain large accounts and credit management departments it can be a very useful service as it both delivers improved cash flow and takes away the headaches associated with cash collection.