YOUR COMPANY IS LOOKING FOR CANADIAN FACTORING FINANCING!
LOOKING FOR THE BEST INVOICE FACTORING FROM AN INVOICE FACTORING COMPANY?
UPDATED 05/30/2025
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Financing & Cash flow are the biggest issues facing business today
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"Cash flow is the lifeblood of any business. You can't sell growth to the bank." - Richard Branson, Virgin Group Founder
INTRODUCTION
Factoring in Canada continues to be more and more of a financing option for Canadian business owners and financial managers.
Generally speaking, factoring in Canada is a great synonym for alternative financing.
When Canadian businesses cannot raise traditional financing for working capital and cash flow solutions, factoring via invoice discounting becomes one of several viable alternatives.
When your business faces cash flow challenges while waiting for customers to pay their invoices, business factoring emerges as a powerful financing solution that can transform your working capital situation.
Business factoring allows you to sell your outstanding accounts receivable to a factoring company, providing immediate cash instead of waiting 30, 60, or 90 days for payment.
A/R Financing has helped countless Canadian businesses maintain steady operations, seize growth opportunities, and navigate the often-frustrating gap between delivering goods or services and receiving payment.
CONSIDER A/R FINANCE AS A GROWTH MULTIPLIER!
The Growth Multiplier: Traditional thinking suggests factoring is for struggling businesses, but forward-thinking companies use it as a growth multiplier. Instead of reinvesting profits slowly, factoring provides immediate capital to scale operations, hire staff, or expand inventory at the pace of opportunity.
Break Free from Cash Flow Prison
Your business is thriving, but unpaid invoices are strangling your cash flow.
Every day you wait to collect payment from clients ....opportunities slip away, and bills pile up.
Let the 7 Park Avenue Financial team show you how Business factoring transforms those pending invoices into immediate working capital, freeing you from the cash flow cycle that holds back your growth and success.
IS FACTORING INVOICES A GOOD IDEA? WHO USES FACTORING
Factoring invoices works for all companies that sell on business credit, require money for day-to-day operations and have a creditworthy customer base.
Invoice factoring cost is quoted as a fee and not an interest rate, and companies should be able to absorb this method of financing. The fact that factoring companies charge a fee in the 1-2% range is the key part of addressing this type of financing - companies with good gross margins can easily absorb this cost.
WHEN DOES INVOICE FACTORING WORK WELL?
Invoice factoring works well for business owners who need money quickly, have reliable customers who have a history of paying invoices on time and can afford the fees that come with selling invoices to a third party -
That party is accounts receivable factoring companies. If this sounds like your business, you might benefit from an invoice factoring solution!
FACTORING FACILITIES CAN BE SET UP QUICKLY AND EASILY
Part of the appeal of a Canadian factoring finance solution is a firm's ability to put this financing facility in place fairly quickly.
In our experience, the facility generally takes about two weeks to finalize, from start to finish.
When we compare this against a firm's time spent negotiating traditional Canadian chartered bank financing, we can easily see this as a key advantage.
WHAT INDUSTRIES IN CANADA USE FACTOR FINANCE
Almost every industry in Canada has the potential for factoring invoices. The process is also referred to as invoice discounting.
Companies that maximize the factoring process are generally those that are expanding and growing very quickly – this is probably the optimal use of factoring as an alternative financing vehicle. However, in many cases, factoring in Canada is simply a survival or restructuring strategy temporarily.
Factoring companies in Canada are often referred to as a 'bridge' back to traditional financing.
Most business owners and financial managers are keenly aware of the cost of carrying their receivables.
At the same time the amount of management time that is spent on monitoring this asset, which quite often represents the largest or second-largest ‘ current asset ‘ they have on their balance sheet. (Inventory is 2nd).
WHAT IS THE TYPICAL CHARGE FOR FACTORING / INVOICE FACTORING RATES?
The average cost of factoring is between 1-2% and depends on factors such as monthly volume, overall credit quality of your receivables and the average invoice value. These costs are expressed as a fee, not an interest rate.
So when you don’t want to wait 30 to 90 days, or in some cases 90 days as seems to be the norm, accounts receivable factoring is the quick and effective solution.
It is somewhat more costly than traditional financing, but savvy business owners can turn the perceived high costs of factoring around in many creative ways.
This can be done in very basic ways, such as increasing pricing by 1 or 2% or utilizing part of the cash flow generated from factoring to take prompt payment discounts with suppliers and negotiating better pricing on goods and services.
Imagine a financing solution that gives you unlimited cash flow and whose costs can be effectively managed by smart business decisions in your business and operational and purchasing model!
FACTORING FINANCE IS NOT DEBT ON YOUR BALANCE SHEET
The process of factoring is really one of the key issues around why factoring was much slower to catch on in Canada, and business owners are highly recommended to research this type of financing with an experienced and credible partner.
If properly structured, your Canadian factoring solutions will not require additional collateral, and they should not be confused with term debt or additional borrowing. You are simply ‘monetizing’ immediately your largest liquid asset, those receivables!
SOME BACKGROUND AND HISTORY ON FACTORING
So why has factoring become a cash flow solution of choice for Canadian businesses? If it’s so great, why haven’t you heard more about it?
The truth is that factoring has been in place for hundreds (some claim thousands!) of years.
When I first heard of factoring, is was always in conjunction with the textile or garment industry in Canada, much of that out of Montreal. Nowadays, factoring is pervasive in every industry.
We can easily maintain that if your firm has good receivables and your overall gross margins can handle factoring, you should consider this financing a potential alternative.
So what’s the ‘Canadian’ spin on factoring?
We know that in the U.S., there are probably over a thousand factor firms - these firms are looking for financing relationships with U.S. businesses. In Canada, the market and the players are, as usual, smaller in size.
We strongly believe that one of the reasons factoring in Canada did not catch on as quickly was simply that Canadian business owners did not like the concept that their receivable is managed via a notification process to their customers.
DO BANKS OFFER FACTORING
Banks do not offer factoring as a general rule. Instead, they take an assignment of your accounts receivable, and these ongoing receivables are collateral security for the loan or line of credit.
They have security on your A/R receivables loan, unlike the factoring process, which sells a receivable.
So if your overall business philosophy does not foster the idea of a finance company notifying and collecting your receivable for you,
You should strongly consider a non-notification financing factoring facility. Not all factoring companies offer this type of funding .
This again is where you need the services of a trusted, credible, and experienced financing advisor to steer you through the Canadian factoring process.
In summary, Factor companies in Canada are, relatively speaking, a newer form of financing, but have been in place in Europe and the U.S. for hundreds of years.
It has major cash flow benefits, is a great alternative financing strategy, and, if managed properly, is cost-effective.
One of the best Canada factoring solutions is Confidential Receivable Finance, allowing you to bill and collect your receivables without any notification to any clients, suppliers, etc.
Companies can choose between non-recourse factoring and recourse factoring depending on what level of typical bad debt risk they wish to maintain of transfer.
Are you looking to fast-track your liquidity as a small business? Factoring services will turn your outstanding invoices into cash immediately, either the same day or within 24 hours. Talk about accelerated working capital via factoring financing!
In some cases, PO financing might be an additional service that is complementary to A/R Finance.
CASE STUDY
Company: Toronto, Ont Manufacturer
Challenge: 90-day payment terms around customer invoice payments created severe cash flow gaps, preventing inventory purchases and limiting growth opportunities.
Solution: Implemented business factoring with 85% advance rates, transforming $500,000 in receivables into immediate working capital.
Results: Increased production capacity by 40%, hired 12 additional employees, and secured larger contracts previously impossible due to cash flow constraints. Monthly cash flow improved from unpredictable to steady, enabling strategic planning and growth investments.
Business Factoring Statistics
- 85% of businesses using factoring report improved cash flow via the invoice factoring process within 30 days
- The global factoring market reached $3.2 trillion in 2023
- Canadian factoring volume grew 12% annually over the past 5 years
- 78% of factoring clients are small to medium-sized businesses
- Average factoring fees from most factoring companies decreased 0.3% annually due to increased competition
- 92% of businesses continue using factoring after the first year
- Factoring approvals average 2-3 days vs 30-45 days for traditional loans and funds are deposited into your banks account with 24 hrs of invoice submission to help better manage cash flow
KEY TAKEAWAYS
- Cash flow acceleration - Converting receivables to immediate cash eliminates waiting periods and provides predictable working capital when companies work with the best invoice factoring solution
- Credit risk transfer - Non-recourse factoring shifts customer payment risk from your business to the factoring company - Either way both invoice factoring or asset based loans can alleviate credit risk
- Qualification criteria - Success depends on customer creditworthiness rather than your business credit history or collateral
- Cost structure understanding - Factoring fees typically range from 1-to 2% of invoice value, varying by industry and customer quality
- Advance rate mechanics - Most factors provide 80-95% immediate advance rate on the invoice amount with the remainder paid after customer payment minus fees
CONCLUSION
When your business faces cash flow challenges while waiting for customers to pay their invoices, business factoring emerges as a powerful financing solution that can transform your working capital situation.
Every successful business owner knows the frustration of watching profits tied up in unpaid invoices while bills demand immediate attention
Call 7 Park Avenue Financial, a trusted, credible and experienced Canadian Business Financing advisor in alternative financing solutions.
FAQ: FREQUENTLY ASKED QUESTIONS
What types of businesses qualify for business factoring?
Business factoring works best for B2B companies with creditworthy commercial customers. Manufacturing, staffing, transportation, wholesale distribution, and service companies typically see the greatest benefits from factoring arrangements. Companies addressing supply chain financing issues benefit from a/r finance.
How quickly can I receive funds through business factoring?
Business factoring provides same-day or next-day funding once approved. Unlike traditional loans that take weeks or months, factoring companies can advance 80-95% of your invoice value within 24-48 hours of submission.
What are the costs associated with business factoring?
Business factoring costs typically range from 1-5% of the invoice value, depending on your industry, customer creditworthiness, and invoice volume. This cost structure often proves more economical than the hidden costs of delayed payments and missed opportunities.
Do my customers know I'm using business factoring? Business factoring can be structured as notification or non-notification. With notification factoring, customers pay the factor directly. Non-notification factoring keeps the arrangement confidential, with customers continuing to pay you normally.
What happens if my customer doesn't pay the factored invoice?
Business factoring typically operates on a non-recourse basis, meaning the factor assumes the credit risk. If your customer fails to pay due to insolvency, the factor absorbs the loss, protecting your business from bad debt.
Who uses business factoring services in Canada?
Factoring providers serve manufacturers, distributors, staffing agencies, trucking companies, and service providers who need immediate cash flow from outstanding receivables rather than waiting for customer payments.
What documents are required for business factoring approval?
Business factoring requires recent financial statements, accounts receivable aging reports, customer credit applications, and sample invoices to evaluate both your business stability and customer creditworthiness.
When should a business consider factoring over traditional loans?
Business factoring makes sense when you need immediate cash flow, have strong receivables but limited collateral, want to avoid personal guarantees, or require flexible financing that grows with your sales.
Where can Canadian businesses find reputable factoring companies?
Business factoring companies operate throughout Canada, with many specializing in specific industries or regions. Research companies through the Commercial Finance Association and verify their reputation through industry references.
Why do businesses choose factoring instead of bank financing?
Business factoring offers faster approval, no collateral requirements, flexible credit lines that grow with sales, and eliminates the lengthy application processes typical of traditional bank financing.
How does business factoring differ from invoice discounting?
Business factoring involves selling your receivables outright, while invoice discounting uses receivables as collateral for loans. Factoring provides complete credit management services, whereas discounting keeps collections in-house.
Which industries benefit most from business factoring?
Business factoring particularly benefits industries with extended payment terms like manufacturing, wholesale distribution, staffing, transportation, textiles, and professional services where cash flow gaps are common.
What credit requirements exist for business factoring?
Business factoring focuses on your customers' creditworthiness rather than your business credit. Even companies with poor credit history can qualify if they have strong, creditworthy commercial customers.
How much of my invoice value can I receive through factoring?
Business factoring typically advances 80-95% of qualified invoice values immediately, with the remaining balance paid after customer payment, minus the factoring fee and any applicable charges.
When does business factoring become cost-prohibitive?
Business factoring becomes expensive when invoice values are very small, customer payment terms are extremely long, or your customers have poor credit histories that increase the factor's risk assessment.
How does business factoring improve cash flow management?
Business factoring transforms your accounts receivable into immediate working capital, eliminating the cash flow gaps that occur between service delivery and customer payment, providing predictable cash flow for operational planning.
What competitive advantages does a third party factoring company provide?
Business factoring enables you to offer better payment terms to customers, take on larger orders, negotiate better supplier terms with cash payments, and respond quickly to growth opportunities without cash flow constraints.
How does business factoring reduce administrative burden?
Business factoring companies handle credit checks, collections, and accounts receivable management, freeing your staff to focus on core business activities rather than chasing payments and managing customer credit.
What growth opportunities does business factoring unlock?
Business factoring / invoice financing provides immediate capital for inventory purchases, equipment upgrades, improves business credit score, staff expansion, and marketing initiatives, allowing you to scale operations at the pace of opportunity rather than cash flow availability.
How does business factoring protect against bad debt?
Business factoring with non-recourse terms transfers credit risk to the factor, protecting your business from customer insolvency and bad debt losses while maintaining consistent cash flow regardless of payment delays.
Is business factoring the same as taking out a business loan?
Business factoring/accounts receivable financing differs from traditional loans because you're selling an asset (receivables) rather than borrowing money. There's no debt on your balance sheet, no monthly payments, and qualification depends on customer creditworthiness, not your credit history.
Can small businesses benefit from invoice factoring services?
Business factoring works for companies of all sizes, often providing small businesses with access to working capital that might be difficult to obtain through traditional lending due to limited collateral or credit history. In traditional factoring the factoring company collects the a/r and addresses issues around slow paying clients.
What happens to the customer relationship with receivable financing?
Receivable financing/factoring can strengthen customer relationships when factors provide professional collections services and flexible payment options, though some business owners worry about losing direct customer control initially.
Are there alternatives to business factoring for cash flow problems?
Business factoring alternatives include traditional bank loans, lines of credit, asset-based lending, merchant cash advances, and equipment financing each with different qualification requirements and cost structures for the business bank account.
How long do business factoring agreements typically last?
Business factoring agreements vary from spot factoring (single transactions) to ongoing relationships lasting months or years, with most companies preferring flexible arrangements that adapt to changing business needs.
What makes business factoring different from other financing options?
Business factoring uniquely combines immediate cash flow, credit protection, and accounts receivable management services, making it a comprehensive solution rather than just a funding source for businesses with strong receivables.
How do factoring companies evaluate potential clients?
Business factoring approval focuses on your customers' ability to pay rather than your credit history, examining customer creditworthiness, invoice verification, and business stability to determine advance rates and terms.
When does business factoring make the most financial sense?
Business factoring provides maximum value when the cost of waiting for payments exceeds the factoring fee, when growth opportunities require immediate capital, or when cash flow predictability outweighs the financing costs.
Citations / More Information
- Commercial Finance Association. "State of the Commercial Finance Industry Report 2023." https://www.cfa.com
- Export Development Canada. "Trade Finance Trends in Canadian SMEs." https://www.edc.ca
- Bank of Canada. "Business Credit Availability Survey Results." https://www.bankofcanada.ca
- Statistics Canada. "Small Business Financing Report." https://www.statcan.gc.ca
- Canadian Federation of Independent Business. "Business Barometer Report." https://www.cfib-fcei.ca
