Invoice Factoring Financing: Complete Guide for Canadian Businesses | 7 Park Avenue Financial

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YOUR COMPANY IS LOOKING FOR FACTORING AND FINANCING

OF CANADIAN RECEIVABLES! 

WHY FACTORING COMPANIES MAKE SENSE FOR YOUR BUSINESS

UPDATED 06/15/2025

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        Financing & Cash flow are the  biggest issues facing business today 

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

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WHAT IS FACTORING    

Factoring financing in Canada is a proven and increasingly popular method of generating cash flow and working capital to maintain a healthy cash balance for businesses.

Break Free from Cash Flow Prison

Your business delivers excellent work, but waiting for customer payments creates cash flow nightmares. Bills pile up while invoices sit unpaid for months.

Let the 7 Park Avenue Financial team show you how Invoice factoring financing transforms outstanding receivables into immediate working capital, eliminating the stress of payment delays and giving you financial freedom to grow your business confidently.

3 Uncommon Takes on Invoice Factoring Financing  

1. The Relationship Preservation Angle: Unlike a traditional loan that creates debt, invoice factoring financing actually strengthens customer relationships by allowing you to offer more flexible payment terms without damaging your own cash flow.
2. The Credit Building Opportunity: Many business owners overlook that factoring companies often provide valuable credit intelligence about your customers, helping you make better decisions about which clients to work with long-term.
3. The Seasonal Business Advantage: Invoice factoring involves financing that scales with your business naturally - during busy seasons, you factor more invoices, during slow periods, you factor fewer, creating a financing solution that adapts to your actual needs.

FINANCING FOR A RETURN TO A HEALTHY BALANCE SHEET

Receivables factoring works best when your firm is experiencing higher-than-historical growth, or in many cases, when you are a start-up or early-revenue company that requires additional cash flow that you might not be able to obtain from Canadian chartered banks to solve the payment terms challenge faced by all businesses.

When speaking to many clients, factoring is clearly misunderstood when it comes to how an invoice factoring company works.

Last week we received a call from a customer who inquired whether we purchase bad, uncollectible accounts receivable. We indicated to that customer that what she in fact wanted was a commercial collection agency!

Factoring is, in fact, the opposite of that—it's the purchase of your accounts receivable (and we mean the collectible accounts!) for immediate cash flow.

Factoring in Canada is somewhat of a fragmented industry, so we encourage you to seek and speak to a respected and credible business financing and factoring advisor.

The type of firm you end up dealing with in factoring will often affect how successful you view this type of financing strategy. There are a number of different types of factoring in Canada.

Technically speaking, we can refer to the types of factoring in the following manner:

• Full notification invoice factoring (This is the U.S. and British model)

• Non-notification factoring

• Spot factoring

• Factoring in the context of a true working capital or asset-based line of credit facility

We are always concerned that customers, armed only with a little bit of information or their first contact with a firm that only offers one type of factoring, will get themselves into the wrong type of facility, thereby tainting any future positive thoughts they might have about this type of financing.

The bottom line again—you can speak to an unbiased expert on how this financing can help your firm, or you can choose a hit-and-miss approach and enter into the wrong type of financing facility. We will take option #1 any day!

WHY CHOOSE ACCOUNTS RECEIVABLE FINANCING / INVOICE FACTORING CHARGES EXPLAINED

Let's talk a bit about invoice factoring rates/costs in general, as opposed to focusing on which type of factoring best suits your firm.

This type of financing is essentially the purchase of one or all of your receivables, on a one-off or ongoing basis, to facilitate immediate cash flow.

Remember also that you are not incurring any debt when you are factoring—in fact, your balance sheet improves because you are turning over receivables/working capital in a more efficient manner.

WHAT IS THE COST OF FACTORING ACCOUNTS RECEIVABLES / FACTORING ADVANTAGES AND DISADVANTAGES

Because there is a cost associated with factoring (i.e., the "factoring fee"—this is a fee, not an interest rate per se), you should generally be comfortable that you have the proper gross margins for the factoring of your accounts receivable/outstanding invoices in order to absorb the fee percentage of the invoice value.

Very low-margin businesses, even though they have good turnover, are not always best suited for this type of financing from factoring providers.

Talk to 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor who can assist you with your business line of credit and factoring facility needs around your cash flow cycle in your business.

Businesses choose to factor for the fast funding of their sales. Talk to our team about confidential factoring services.

CASE STUDY -  INVOICE FACTORING EXAMPLE

Company: GTA Manufacturing Solutions

Challenge: Rapid growth led to cash flow gaps with 60-day payment terms Solution: Invoice factoring financing providing 85% advance on invoices

Results:

• Immediate access to $150,000 monthly working capital
• Ability to accept larger contracts without cash flow concerns
• 40% revenue growth within 12 months
• Eliminated payroll delays and supplier payment issue
• Improved customer relationships through flexible payment terms

The company transformed from struggling with payment delays to confidently pursuing growth opportunities, demonstrating how invoice factoring financing enables business expansion.

KEY TAKEAWAYS  

• Cash flow acceleration - Converting 30-90 day payment terms into 24-48 hour funding cycles
• Customer credit reliance - Approval based on client creditworthiness rather than business credit
• Immediate working capital - Access to 70-90% of invoice value upon approval
• Collection outsourcing - Factoring company handles accounts receivable management
• Scalable financing - Funding grows and shrinks with business invoice volume
• No debt creation - Asset sale rather than loan, improving balance sheet ratios via the use of a third party factoring company
• Industry-specific benefits -  Invoice financing offers offers a valuable for B2B service and manufacturing companies
• Recourse vs non-recourse options - Risk allocation between business and factoring company in these two types of invoice factoring with a reputable factoring company - Not all factoring companies offer non recourse options

CONCLUSION - FACTORING SERVICES  

Accounts receivable factoring is growing in popularity. At the same time, the myriad types of firms that offer this financing, as well as the way in which they offer factoring, can ultimately affect whether your firm is a successful user of this financing strategy. Investigate the benefits of this type of financing, and ensure you understand who is offering it to you and which "factoring model" they use, allowing you to better determine if financing in this manner suits your cash flow and working capital needs. That's proper business decision-making!

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

What is factoring finance?

Factoring finance is a business financing arrangement whereby a business sells its accounts receivable (i.e., unpaid invoices) to an outside third party called "invoice factoring companies" at a discount—usually in the 1-2% range via a factoring  contract  /  agreement. Advances are made in the 90% range, and businesses receive the remaining balance, less a fee, when the client pays the invoice.

Factoring A/R is a form of asset-based lending to assist in the company's cash flow.

This allows companies that are unable to attract traditional financing and who have low cash flow and who have other needs around seasonal fluctuations or heavy investment spending on capital projects to fund short-term obligations without taking on long-term debt. Small businesses and larger corporations are users of this method of cash flow financing from a traditional financial company or online factoring companies.

Other names for this type of financing include:

• Accounts receivable financing

• Invoice factoring

• Invoice discounting

• Non-recourse factoring/debt factoring—most factoring companies offer recourse and non-recourse financing

What is invoice factoring financing and how does it work?

Invoice factoring financing involves selling your outstanding invoices to a factoring company at a discount, receiving immediate cash for 70-90% of the invoice value via the invoice factoring process. The factoring company collects payment directly, waiting for customers to pay.

How quickly can I access funds through invoice factoring financing?

Invoice factoring transactions typically provide funds into the business bank account within 24-48 hours of invoice submission and approval. This speed makes it ideal for urgent cash flow needs provides help to manage cash flow. The invoice financing company collects from the client for firms using traditional notification factoring.

What types of businesses qualify for invoice factoring financing?

Invoice factoring financing works best for B2B companies with creditworthy customers, including manufacturers, staffing agencies, transportation companies, and professional service providers.

What are the costs associated with invoice factoring financing?

Small business  Invoice factoring costs typically range from 1-2% of the invoice value, depending on factors like invoice size, customer creditworthiness, and contract terms.

How does invoice factoring financing differ from traditional bank loans?

Invoice factoring financing is not a loan - it's the sale of an asset (your invoices). This means no monthly payments, no additional debt on your balance sheet, and approval based on your customers' credit rather than yours.

Who can benefit from invoice factoring financing?

Invoice factoring financing benefits B2B companies with slow-paying customers, including manufacturers, distributors, staffing agencies, and service providers who need immediate cash flow.

What documents are required for invoice factoring financing approval? Invoice factoring financing requires basic business documentation including invoices, customer lists, accounts receivable aging reports, and business registration information.

When should a business consider invoice factoring financing?

Invoice factoring financing makes sense when cash flow gaps threaten operations, growth opportunities arise, or seasonal fluctuations create working capital challenges.

Where can Canadian businesses find reputable invoice factoring financing providers?

Invoice factoring financing providers include specialized factoring companies, alternative lenders, and some traditional financial institutions across Canada.

Why do factoring companies focus on customer creditworthiness?

Invoice factoring financing success depends on collecting payments from your customers, making their creditworthiness more important than your business credit score.

How does the invoice factoring financing process work from start to finish?

Invoice factoring financing begins with application and approval, followed by invoice submission, immediate funding, and collection management by the factoring company.

What industries work best with invoice factoring financing?

Invoice factoring financing thrives in industries with B2B transactions, including manufacturing, transportation, staffing, healthcare, and professional services.

When does invoice factoring financing become too expensive?

Invoice factoring financing costs may outweigh benefits when customers pay consistently within 30 days or when profit margins are extremely thin.

How does invoice factoring financing affect customer relationships?

Invoice factoring financing can strengthen customer relationships by allowing more flexible payment terms, though communication about the arrangement is important.

What happens if a customer doesn't pay their invoice in factoring?

Invoice factoring financing agreements vary - some offer recourse (you're responsible for unpaid invoices) while others are non-recourse (factoring company assumes the risk).

How does invoice factoring financing improve cash flow predictability?

Invoice factoring financing provides predictable cash flow by converting unpaid invoices into immediate funds, allowing better financial planning and budget forecasting.

Can invoice factoring financing help businesses take advantage of early payment discounts?

Invoice factoring financing enables businesses to offer attractive early payment discounts to customers while maintaining positive cash flow through immediate funding.

How does invoice factoring financing support business growth?

Invoice factoring financing fuels growth by providing working capital for inventory, payroll, equipment, and marketing without waiting for customer payments.

What competitive advantages does invoice factoring financing provide?

Invoice factoring financing allows businesses to offer more competitive payment terms, take on larger contracts, and respond quickly to market opportunities.

How can invoice factoring financing reduce administrative burden?

Invoice factoring financing often includes collection services, reducing the time and resources spent on accounts receivable management and customer follow-up.

Is invoice factoring financing right for startup businesses?

Invoice factoring financing can benefit startups with established customers and outstanding invoices, though approval depends more on customer creditworthiness than business history.

How does invoice factoring financing impact business credit scores?

Invoice factoring financing typically doesn't affect business credit scores since it's not a loan, though some factoring companies may perform credit checks during approval.

Can businesses factor only some invoices or must they factor all? Invoice factoring financing flexibility varies by provider - some require all invoices while others allow selective factoring based on cash flow needs.

What happens to customer relationships when using invoice factoring financing? Invoice factoring financing impact on customer relationships depends on communication and the factoring company's collection approach, with many maintaining professional relationships.

Are there alternatives to invoice factoring financing for cash flow problems? Invoice factoring financing alternatives include asset-based lending, merchant cash advances, business lines of credit, and accounts receivable financing options.

What fundamental business problem does invoice financing solve?

Invoice factoring financing solves the timing mismatch between delivering services and receiving payment, providing immediate working capital to maintain operations and pursue growth opportunities.

How does the risk assessment process work in invoice factoring financing?

Invoice factoring financing risk assessment focuses primarily on customer creditworthiness and payment history, evaluating the likelihood of successful invoice collection rather than business credit.

Why might invoice factoring financing be preferable to traditional bank financing?

Invoice factoring financing offers faster approval, no monthly payments, improved cash flow predictability, and approval based on customer credit rather than business credit history.

Citations

1. Canadian Association of Commercial Finance Companies - www.cacfc.ca
2. Industry Canada Business Financing Reports - www.ic.gc.ca
3. Bank of Canada Financial System Review - www.bankofcanada.ca
4. Statistics Canada Business Financing Survey - www.statcan.gc.ca
5. Toronto Board of Trade Business Resources - www.bot.com