Receivables Factoring: Convert Invoices to Cash | 7 Park Avenue Financial

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ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?

FACTORING RECEIVABLES IN CANADA

UPDATED 07/27/2025

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Information On Confidential Invoice Finance & Accounts Receivable Factoring   

INTRODUCTION  

Break Free from Cash Flow Prison  

Your invoices are approved. Your work is complete. Yet your bank account remains empty while you wait months for payment.

Meanwhile, bills pile up, opportunities slip away, and your business suffers.

Let the 7 Park Avenue Financial team show you how Receivables factoring immediately converts your outstanding invoices into cash, eliminating dangerous payment delays that threaten your company's survival and growth potential.

2 Uncommon Takes on Receivables Factoring

1. The "Business Insurance" Perspective: Receivables factoring isn't just financing—it's protection against customer bankruptcy and bad debt. When you factor invoices, the factoring company often assumes credit risk, meaning if your customer fails to pay, you're typically not responsible for repaying the advance.
2. The "Competitive Advantage" Angle: Factoring allows smaller businesses to offer larger customers extended payment terms while maintaining their own cash flow, effectively competing with bigger companies that can afford to wait for payment.

Cash flow can be a problem for businesses of all sizes, but there are three popular solutions: business loans/working capital loans, receivables financing, and invoice factoring.

Accounts receivable financing isn't always in the headlines—we're the first to admit that. However, it should surprise business owners and their financial managers that thousands of Canadian firms are moving toward a working capital financing facility known as receivable factoring, offered by most factoring companies in Canada.

WHAT IS RECEIVABLES FINANCING?  

The accounts receivable financing solution is a solid way to access cash flow when your business needs it.

Your company's invoices are the collateral, and you receive immediate funding—avoiding waiting for days, weeks, or months before getting paid!

Companies who sell on business credit/trade credit can choose which of their customers' invoices will be financed or drawn down under an approved facility.

At 7 Park Avenue Financial, we believe the best way for clients to finance their receivables is by choosing "selective receivables financing" under a "confidential receivable finance solution" .

WHAT ARE THE KEY ADVANTAGES OF RECEIVABLES FINANCING?

The benefits of receivables financing include the fact that it provides a quick source of cash flow, which allows companies to direct funds where they are most needed.

This can be helpful for businesses in maintaining revenue stability.

Unlike traditional bank loans, where the business retains ownership versus receivables financing from a commercial finance firm is based on existing sales and receivables. Though payment hasn't been received, products and services have been delivered. What are the chances of a customer defaulting on an invoice?

This is calculated beforehand by a business that assumes credit risk or that chooses to transfer the risk to financing providers.

IS THERE A DISADVANTAGE TO RECEIVABLE FINANCE/FACTORING?  

The primary disadvantage of receivables financing is that it costs more than regular business loans that are term loans in nature or unsecured bank facilities.

A factoring fee is typically 0.75%–1.5% with respect to what the factoring company charges. This may be due to a number of factors based on overall credit quality—in essence, the business owner must choose between access to capital or cost of capital.

WHAT IS INVOICE FACTORING?

Invoice financing is a great way for Canadian businesses to access cash quickly.

It offers users close to the full amount (80–90%) of their accounts receivable's value, and a fee is charged by alternative funding providers—the balance of the invoice is paid to the company less a discount fee, which is not expressed as an interest rate per se.

This type of financing is short-term financing in nature and brings no debt to the balance sheet. Balance sheets are in effect monetized, allowing businesses quick turnaround on funds.

There are numerous reasons why businesses choose or must choose to finance their sales outside traditional bank norms.

One reason might be they aren't able to access all the business credit they need; in other instances, they might not qualify for any traditional bank credit solution while at the same time their business is growing!

MORE ABOUT CONFIDENTIAL INVOICE FINANCING!

Here is a question: How does factoring work, and what if you could get invoice finance that would allow you to bill and collect your own receivables under this facility? Possible? Absolutely!

Canadian business financing solutions such as Confidential A/R Finance provide your business with unlimited cash flow.

Unlike your competitors, you, not a third party, are in control of your facility. Most Canadian business owners and financial managers know a bit about how factoring, aka receivable financing, works, but some terms are confusing to business owners/entrepreneurs.

THE CONFIDENTIAL AR FINANCING DIFFERENCE  

Factoring—we call it "old school factoring"—is a process whereby you sell your receivables and receive immediate, i.e., debtor finance same-day cash for those invoices.

99.9% of all the financing done in Canada under this business model has the third-party lender firm collecting your invoices and notifying the customer under the factoring agreement.

They also follow up for collection and interact with your customer because, as we said, you have sold them your receivables or receivables in whole or part.

Clients of 7 Park Avenue Financial like the result: instant cash flow—a factoring company pays immediately on invoicing—and constant working capital replenishing.

They don't necessarily like the third-party firm taking over the client relationship related to accounts receivable.

Enter Confidential Receivable Financing. Under this scenario, your receivables are billed and collected by your firm. There is no third-party interference with the relationship you have with clients regarding billing and collecting around the general creditworthiness of your client base.

Business owners like this latter model.

The bottom line is that your financing relationship is not disclosed to your customers, and that's a good thing. Your firm achieves all of the benefits of accounts receivable financing, but your receivable factoring is in your control under the confidential invoice finance model.

Under traditional US and UK type receivable factoring, customers or small businesses receive a letter from either your business or the factoring firm, notifying your clients about the issue of your firm having sold its receivables. If you don't care about that, no problem! But if you care about the perception of that letter, you should consider confidential invoice finance.

Using a solid non-bank A/R finance model gives you a competitive advantage. It differs from bank financing. It is the alternative to the traditional factoring of invoices that we have talked about here.

The bottom line is there is a world of difference in the facilities offered.

Cost of Factoring/Confidential A/R Finance  

The cost of confidential invoice discounting is the same as traditional factor financing—so that's a good thing! This financing method is costlier than bank interest rates but does not require the significant emphasis that banks place on personal guarantees, outside collateral, ratios, covenants, credit limits, etc.

In fact, business owners may be surprised to know that credit limits are virtually unlimited if your business has the sales levels to justify increases in the facility and that the facility is operating properly.

Case Study

The Manufacturing Success Story  

ABC Manufacturing, a mid-sized Canadian component manufacturer, faced a common challenge: 60-day payment terms from major automotive clients created severe cash flow gaps. Despite consistent orders worth $500,000 monthly, the company struggled to meet payroll and purchase raw materials while waiting for payments.

After partnering with a receivables factoring company, ABC Manufacturing received 85% of invoice value within 24 hours of delivery.

This immediate cash flow allowed them to:

• Accept a $2 million contract requiring upfront material purchases
• Hire 15 additional skilled workers to meet demand
• Negotiate better supplier terms with improved payment capability
• Eliminate the stress of cash flow uncertainty

Within 12 months, the company's revenue increased by 40% while maintaining healthy cash flow throughout their growth phase.

The factoring relationship provided not just financing, but the confidence to pursue opportunities previously impossible due to cash flow constraints.

Key Takeaways  

• Immediate cash conversion: Receivables factoring transforms outstanding invoices into working capital within 24-48 hours, eliminating dangerous cash flow gaps

• Customer credit dependency: Approval relies on your customers' creditworthiness rather than your business credit, making it accessible when traditional financing isn't available

• Non-recourse protection: Many factoring agreements include bad debt protection, transferring customer payment risk to the factoring company

• Scalable financing structure: Funding grows automatically with sales volume, providing more capital during busy periods without loan applications

• Collection outsourcing benefits: Factoring companies handle invoice collection, credit checks, and customer communications, freeing up management time

• Competitive payment terms: Enables offering extended payment terms to customers while maintaining your own cash flow, leveling the playing field with larger competitors

• No debt accumulation: Factoring involves selling assets rather than borrowing, maintaining balance sheet strength and preserving credit capacity

• Industry-specific expertise: Factoring companies often specialize in specific industries, providing valuable insights and connections beyond just financing

CONCLUSION - ACCOUNTS RECEIVABLE FACTORING WORKS  

As a business owner, you want to help ensure the vital cash flow necessary to run your business on a day-to-day basis.

While traditional bank financing may be an option for many businesses, the fact is that thousands of Canadian businesses don't qualify for bank funding, so A/R receivables financing remains a proven strategy to finance the business until the customer pays,  and unlock the investment that makes in accounts receivables.

Key issues for Canadian business owners to consider are the quick approval process, the amount of funding a business can access, as well as fees or interest rates. Ultimately it's a question of your path to business growth.

Call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor with a track record of business finance success, one who will assist you in closing this valuable type of working capital financing solution.

FAQ: FREQUENTLY ASKED QUESTIONS/PEOPLE ALSO ASK/MORE INFORMATION  

What are accounts receivable?

Accounts receivable is the process by which companies invoice their accounts for products or services sold and delivered but not yet paid by clients under business credit trade terms. These balances are typically a large part of a company's assets on the balance sheet. Average trade terms tend to be 30 days, but this varies depending on company policy or industry.

Financing an investment a company makes in A/R in a financial transaction can be expensive, and business owners are always concerned about customer relationships.

HOW DO YOU COMPARE BANK FINANCING VERSUS FACTORING

When it comes to receivables financing, the key issue revolves around the type of financing provider a business utilizes—either a bank or a commercial finance firm. Banks tend to finance receivables on an unsecured basis, while specialized lenders offer both secured financing and in some cases collection services.

A summary of key differences in bank financing versus third-party non-bank commercial factoring companies is as follows:

Bank approvals are slower to obtain, and financing can be limited due to the stringent terms banks require around approval. The factoring industry typically has quick approval procedures.

Banks do not collect the invoices they finance—in some cases third-party factoring firms participate in collection processes. Banks provide either term loans or unsecured lines of credit; the A/R factoring process has the paperwork confirming the purchase of the client receivables under agreed-upon factoring fees as clients pay the invoice—the factoring company buys the invoices.

Banks typically in Canada advance 70% against A/R balances, while an accounts receivable factoring company/receivables financing non-bank firms offer 80–90% funding in a factoring transaction. Bank interest rates and fees are typically lower than third-party non-bank commercial finance firms—banks charge an interest rate while factoring firms charge a fee. Factoring companies can provide non-recourse factoring, which transfers credit risk to the finance firm for additional factoring costs.

 WHAT TYPE OF RECEIVABLE FINANCE STRATEGY IS BEST FOR YOUR FIRM?

Cash flow is a key priority for any business owner. Business owners need to address financing their working capital by asking themselves several key questions.

1. What is the urgency and need around cash flow and access to capital—what financing method will provide the quickest access to cash?

2. What amount of business capital is required—accounts receivable factoring companies typically offer more financing.

3. What emphasis does the company place on collection policy and adherence to trade credit terms offered to clients—can more sales be generated by a more liberal credit term extended to clients when good relationships exist? Can a company benefit from immediate access to cash when trade credit terms are extended and financed by many factoring companies who can fund invoices less than 90 days old?

What industries benefit most from receivables factoring? Receivables factoring works exceptionally well for service-based businesses, manufacturers, distributors, and any company with B2B customers who pay on net terms. Industries like staffing, trucking, construction, textiles, and professional services commonly use factoring because they often face long payment cycles while maintaining ongoing operational expenses.

How quickly can I receive funds through receivables factoring? Receivables factoring typically provides funding within 24-48 hours of invoice submission. Once your factoring agreement is established, new invoices can be funded same-day or next-day, making it one of the fastest business financing solutions available compared to traditional loans that may take weeks or months.

What are the costs associated with receivables factoring? Receivables factoring costs typically range from 1% to 5% of the invoice value, depending on factors like invoice size, customer creditworthiness, industry risk, and volume. While this may seem higher than traditional lending rates, factoring provides immediate cash flow without requiring collateral or lengthy credit approvals.

Do I need good credit to qualify for receivables factoring? Receivables factoring approval depends primarily on your customers' creditworthiness rather than your business credit score. Since the factoring company is essentially purchasing your invoices, they're more concerned with your customers' ability to pay than your credit history, making it accessible for businesses with poor credit.

Can I choose which invoices to factor? Most factoring companies offer selective factoring, allowing you to choose specific invoices to sell while maintaining direct collection on others. This flexibility lets you factor only when you need immediate cash flow while preserving customer relationships on invoices you prefer to collect yourself.

Who qualifies for receivables factoring services? Receivables factoring is available to businesses that sell products or services to other businesses on credit terms. Companies with monthly sales of $10,000 or more and customers with good payment histories typically qualify easily.

What documentation is required for receivables factoring? Receivables factoring requires basic business documentation including incorporation papers, recent financial statements, customer invoices, aging reports, and customer contracts. The application process is typically much simpler than traditional bank loans.

When should a business consider receivables factoring? Receivables factoring makes sense when businesses need immediate cash flow, are experiencing rapid growth, face seasonal fluctuations, or want to eliminate collection responsibilities. It's particularly valuable during expansion phases or when traditional financing isn't available.

Where can Canadian businesses find reputable factoring companies? Canadian businesses can find factoring companies through industry associations, financial advisors, and specialized business financing consultants like 7 Park Avenue Financial. It's important to compare rates, terms, and service levels among different providers.

Why choose receivables factoring over traditional bank loans? Receivables factoring offers faster approval, immediate funding, no debt accumulation, and approval based on customer creditworthiness rather than business credit. Unlike loans, factoring grows with your sales volume and doesn't require fixed monthly payments.

How does the receivables factoring process work? Receivables factoring involves submitting invoices to the factoring company, receiving immediate advance payment (typically 70-90% of invoice value), and having the factoring company collect payment directly from your customers. The remaining balance, minus fees, is paid when your customer settles.

What happens if customers don't pay factored invoices? Receivables factoring typically includes credit protection, meaning the factoring company assumes the risk of customer non-payment. However, terms vary by provider, so it's important to understand whether you're working with recourse or non-recourse factoring when it comes funding unpaid invoices and credit risk management with a financing company.

When does receivables factoring become cost-prohibitive? Factoring accounts receivable may become expensive if used continuously for all invoices over extended periods. It's most cost-effective for short-term cash flow needs, seasonal businesses, or companies in growth phases requiring immediate working capital.

How do factoring rates compare across different industries? Receivables factoring rates vary by industry risk, with lower-risk sectors like government contracting receiving better rates (1-2%) while higher-risk industries like construction or new businesses might pay more per invoice.

What alternatives exist to receivables factoring? Receivables factoring alternatives include traditional bank loans, lines of credit, asset-based lending, merchant cash advances, and equipment financing. Each option has different qualification requirements, costs, and timeframes that may suit different business situations.

How does receivables factoring improve cash flow management? Receivables factoring eliminates the cash flow gap between completing work and receiving payment by providing immediate access to invoice value. This steady cash flow allows businesses to meet payroll, pay suppliers, and invest in growth opportunities without waiting for customer payments.

What competitive advantages does receivables factoring provide? Receivables factoring enables businesses to offer competitive payment terms to customers while maintaining their own cash flow, compete for larger contracts requiring upfront investments, and respond quickly to market opportunities that require immediate capital.

How does receivables factoring reduce administrative burden? Receivables factoring companies handle credit checks, invoice processing, payment collection, and customer communications, allowing business owners to focus on core operations rather than chasing payments and managing accounts receivable.

What risk management benefits does receivables factoring offer? Receivables factoring with non-recourse terms protects businesses from customer bankruptcy and bad debt losses while providing professional credit evaluation services that help identify risky customers before extending credit.

How does receivables factoring support business growth? Receivables factoring provides scalable financing that grows with sales volume, eliminates the need for traditional loan applications when expanding, and provides immediate capital for inventory purchases, equipment upgrades, or market expansion initiatives.

What is the difference between receivables factoring and invoice discounting? Receivables factoring involves selling invoices to a third party who handles collection, while invoice discounting allows businesses to borrow against invoices while maintaining control over customer relationships and collection processes.

How long do receivables factoring agreements typically last? Receivables factoring agreements can range from month-to-month arrangements to multi-year contracts, with many companies preferring flexible terms that allow scaling up during busy periods and scaling down during slower times.

Can receivables factoring affect customer relationships? Receivables factoring may impact customer relationships since the factoring company handles collections, but professional factoring companies maintain respectful customer interactions and often improve collection efficiency without damaging relationships.

What happens to existing customer contracts with receivables factoring? Receivables factoring typically doesn't affect existing customer contracts, but businesses should review agreements to ensure there are no restrictions on assigning invoices to third parties before entering factoring arrangements.

Is receivables factoring considered debt on financial statements? Receivables factoring is generally not considered debt since it involves selling assets (invoices) rather than borrowing money, which can improve balance sheet ratios and maintain borrowing capacity for other financing needs.

What determines receivables factoring approval and rates? Receivables factoring approval depends primarily on customer creditworthiness, invoice verification, and business legitimacy. Rates are determined by factors including customer payment history, invoice size, industry risk, and factoring volume, with better customers and larger volumes receiving more favorable terms.

How does receivables factoring differ from traditional business lending? Receivables factoring differs from traditional lending by focusing on customer creditworthiness rather than business credit, providing immediate funding without debt accumulation, and offering flexible financing that scales with sales volume rather than fixed loan amounts.

What ongoing responsibilities do businesses have with receivables factoring? Receivables factoring requires businesses to provide accurate invoices, notify the factoring company of customer disputes or returns, maintain proper documentation, and comply with agreement terms regarding customer communication and invoice assignment procedures.

Citations

Brealey, Richard A., Stewart C. Myers, and Franklin Allen. Principles of Corporate Finance. 12th ed. New York: McGraw-Hill Education, 2017. https://www.mheducation.com

Industry Canada. "Small Business Financing in Canada: Policy Challenges and Options." Government of Canada Publications, 2019. https://www.ic.gc.ca

International Factors Group. "Annual Review of Global Factoring." Amsterdam: IFG Publications, 2023. https://www.ifgroup.com

Klapper, Leora. "The Role of Factoring for Financing Small and Medium Enterprises." Journal of Banking & Finance 30, no. 11 (2006): 3111-3130. https://www.journals.elsevier.com

Statistics Canada. "Business Conditions Survey: Access to Financing." Government of Canada, 2023. https://www.statcan.gc.ca

7 Park Avenue Financial." Finance Factoring Receivable Financing Canada" https://www.7parkavenuefinancial.com/finance-factoring-receivable-financing-canada.html