Invoice factoring companies are companies that fully manage a businesss sales ledger, and ensure collection of all the debts due. Invoice factoring companies buy invoices or receivables from a business and advances 80 to 90 percent of the invoice amount. The remaining amount minus the charges will be paid when the customer clears the debt. The invoice factoring company takes the responsibility of informing the customer about the service. The seller receives the amount within 24 hours in most cases.

Invoice factoring companies are advantageous to businesses in that they provide the working capital needed when the clients fail to pay on time. They demand no collaterals and are therefore hassle free.

Invoice factoring companies gain from the service charge and the interest charge for the cash advanced to the business. The service charge is usually a certain percentage of the sales factored and the service charge is calculated usually depending on the annual turnover of the company, the number of invoices and the number of customers. The interest charges are along the lines of normal secured bank overdraft rates. Some invoice factoring companies provide bad debt protection whereas some do not. While this is termed non-recourse factoring, recourse factoring is the policy when the bad debts remain with the business.

Invoice factoring companies are a large group, existing as units within many commercial banks, as sections of large financial institutions, as companies, and as services offered by individuals. When choosing a factoring company, extreme care is to be taken regarding its terms and conditions, reputation, service, bad debt protection, service and interest charges. It is also best to verify whether the company chosen provides Internet access to ones account so that the sales ledger and customer details can be constantly monitored. It is also crucial to ensure that they promote a good customer relationship.