YOUR COMPANY IS LOOKING FOR CANADIAN RECEIVABLES FINANCING!
FINALLY - A FINANCING ARRANGEMENT THAT WORKS!
UPDATED 05/21/2025
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RECEIVABLES FINANCE IN CANADA
Financing receivables can be a key ' igniter ' in your firm's search for business credit that works for your cash flow needs. Accounts receivable factoring companies can help!
Accounts receivable factoring and the cost of factoring outstanding invoices / unpaid invoices in your search for business funding require some special analysis and expertise around cash flow issues.
This method of invoice factoring & financing can often ' unfreeze ' your working capital for a company's accounts receivables for companies who cannot access a traditional bank loan or other bank funding or are perceived to have poor credit from a business perspective.
Let's dig in and show you how to fix the business credit freeze.
Unlocking Working Capital: The Power of AR Receivable Financing for Canadian Businesses
Cash flow constraints keeping you awake at night?
When unpaid invoices pile up, your business operations suffer while your obligations continue to mount.
Let the 7 Park Avenue Financial team show you how AR Receivable Financing transforms your outstanding invoices into immediate working capital, giving you the financial breathing room to focus on growth rather than cash flow gaps in accounts payable and other obligations.
Consider This : 3 Uncommon Takes on Accounts Receivable Financing
- Unlike traditional loans, Accounts Receivable Financing actually improves your balance sheet by converting illiquid assets (receivables) into cash without adding debt—a distinction that can dramatically improve your financial ratios.
- Receivables Financing can serve as a strategic negotiation tool, allowing you to offer better terms to customers while maintaining optimal cash flow, effectively using finance as a competitive advantage.
- The scalability of Receivables Financing creates a natural hedge against growth-related cash flow problems—as your sales increase, so does your access to working capital, preventing the common "success crisis" many growing businesses face.
HOW DOES FACTORING INVOICES FUNCTION ON A DAY-TO-DAY BASIS
The entire AR Factoring process is the cash flowing of your receivables after your firm has provided either its goods or services to your client.
A defined process allows your company to receive funding to complete your sale and the invoice to the client via an immediate advance, and then the full amount remaining on any earned invoice/true sale to your client.
Depending on what type of solution you choose ( recourse versus non recourse ), the issue of non-payment is always clearly laid out in your agreement. We also encourage our clients to avoid long-term contracts.
WHEN DO COMPANIES NEED FACTORING
Factoring clients are best suited to these financial solutions when their business grows and traditional capital is unavailable.
In fact, while traditional financial institutions are focused on credit limits, annual reviews, etc., factoring company solutions via your company's balance sheet is very flexible, and limits can very easily be raised on funding your company's receivables if your sales are growing for products & services your company sells.
It's all about the ability to access cash immediately!
HOW DOES ACCOUNTS RECEIVABLE FINANCING WORK?
In fact, business owners control their own limits based on their decisions as to how much of their receivables they wish to finance via invoice financing in the accounts receivable process and when to submit those invoices for funding under the terms of the factoring agreement.
After your firm has invoiced your client, you provide a copy of that invoice to the receivable finance firm you are utilizing.
Many firms offer very different versions of what we could call ' traditional factoring,' around money owed to your firm. Still, essentially, you will receive your funds via the cash advance within a day or so of invoice submission from the financing company.
The amount you receive from the factoring company on the invoice's face value is typically 80-90% of the invoice amount. A wire transfer is made into your business bank account -
You receive the balance of the invoice when your client pays, at which time a fee of approx 1-2% is deducted as the ' factoring fee " - not an interest rate
This latter point of a factoring fee must be stressed and understood when looking at any types of receivable financing..
Why? Many business owners and financial managers view the factoring fee as an ' interest rate ' when it is simply a service cost for providing the financing. A better way to think of it is to reduce your gross margin of that 1-2% range that we expressed previously regarding the cost of factoring that account receivable.
HOW MUCH DOES ACCOUNTS RECEIVABLE FACTORING COST?
The costs typically associated with factored receivables from receivable factoring companies are in general 1%-2% and this is expressed as a fee, and not an interest rate- Factors such as the volume of invoices and the credit quality of the customer base can reduce or increase the actual rate.
This whole area is one of the largest misnomers around accounts receivable factoring fees and their true cost.
Your true financing cost in factoring will revolve around the agreed-upon fee charged and your ability to negotiate the amount that will be advanced on each invoice. Those are two, but not all, key drivers in calculating your financing cost and are the true secret to understanding factoring company rates.
WHY DOES FACTORING WORK?
Factoring works simply because it turns your sales into working capital, allowing you to accelerate cash flow via the financing of a/r.
Business owners will not be surprised to know that it typically takes anywhere from 30-90 days these days to collect your accounts, your stated payment terms notwithstanding!
It should be noted that the advance rates on each invoice tend to vary by industry - the trucking/freight and staffing industries are two examples of high users of this method of financing sales, so the advance rates are quite high - that's a good thing!
HOW TO ADDRESS MISCELLANEOUS FEES IN THE ACTUAL COST OF FACTORING
It should be noted that some costs considered as ' miscellaneous ' by some, such as account set up, bank lockbox fees, and credit checks, can add up and should be considered in your total cost analysis of the loan agreement/financing agreement.
Accessing the cash allows you to address the day operating cash needs of your business. If your company is in a position of either having to or offering extended payment terms for your suppliers and having sufficient gross margins and can sustain factoring fees, you have a solid potential solution for your business.
WHAT IS A KEY BENEFIT OF FACTORING ACCOUNTS RECEIVABLES
In certain cases, a business might be able to take advantage of taking on a new or larger client that previously could not be considered based on size and the working capital investment your firm would have to make in carrying a/r or funding additional inventory.
A firm with many clients that generate a large number of invoices could utilize accounts receivable factoring to reduce the collection costs and investment in staff to facilitate financing as the business sells its products and services.
A key benefit of factoring is that it does not bring debt onto your balance sheet - it is not a loan! The invoice factoring cost is the monetization of what is typically your largest current asset - A/R. Some of the related terms in factoring can get confusing - talk to 7 Park Avenue Financial for a clear explanation!
HOW CAN YOU GROW YOUR BUSINESS WITH FACTORING?
As we mentioned, many firms are stalled in sales growth due to their inability to fund the working capital component.
Factoring AR allows you to take on those clients with ease.
Many firms experience what the pros call ' bulge finance needs '; this might be during business seasonality or other reasons. That's when factoring as a guide to financing invoices makes sense. Factoring is often viewed as a ' bridge ' to more traditional financing, typically Canadian banks.
WEATHERING THE CASH FLOW STORM AND WORKING YOUR WAY BACK TO TRADITIONAL FINANCING
Being able to demonstrate a successful factor finance facility allows your company to build a track record of instability, thereby improving your commercial credit history.
In an economic crisis, pandemics included !! Alternative financing sources, such as AR Financing, allows your firm to weather the storm.
Every business owner can relate to Canadian chartered banks' constraints on financing business in a downturn.
Downturns might be company-specific or part of a general industry-specific or broad economic downturn. That situation tends to lead to a downward spiral in many firms as business credit tightens. Factoring Companies typically finance companies in good times and in less-than-good times.
CAN FACTORING IMPROVE PROFITS VIA ACCESS TO CASH?
Many businesses considering factoring finance tend to compare it to more traditional business finance solutions, such as banks' services.
Many suppliers and vendors to your business offer early payment discounts - one such common offering is' 2% net 10 days '. That allows you to deduct 2% of the supplier's invoice based on paying early. Firms that have incoming cash tied up in a/r are, of course, unable to take advantage of this discount.
But factoring solutions allow you to take that discount, thereby lowering a very significant amount of the factoring fee! In some cases, you can purchase in bulk, allowing you to lower your cost of goods further, thereby improving margins.
As we have noted, firms constantly battling cash flow challenges can rarely take advantage of the two examples outlined.
A harsher reality of factoring solutions is that many firms cannot meet Canadian banks' demands regarding accessing the business credit they need.
Alternative finance solutions, such as factoring and asset-based lending, allow your firm to leverage its assets and sales revenue potential. Thousands of Canadian businesses utilize this method of cash-flowing sales when they otherwise could not achieve it.
While in the majority of cases, the factoring firm or asset-based lending firm becomes your ' senior lender, 'these facilities also can be complementary to other business credit you have in place all about your total exposure to your lenders versus the amount of collateral you have in receivables and other assets.
Trends now show that thousands of businesses in Canada find themselves unable to get the financing they need.
Whether they are ' cut off ' or ' restricted' in getting capital into their firm, the repercussions can be anywhere from being mild to severe, severe, of course, meaning closing your business. Why is receivable finance funding different, and how does the business owner/manager asses the cost of factoring A/R into a sensible arrangement?
FACTORING COSTS LAID BARE!
Assessment of 3 Critical Facts In Invoice Finance For Small Businesses
We have already mentioned the factoring fee, which is the actual charge by your commercial financing partner to finance invoices on an ongoing basis before your ability to collect payment for the products and services your business sells before the customer pays.
The decision on what that fee is becomes based on several factors assessed by your factoring firm, including your overall policy on extending credit. Those data points include your client's overall industry profile, your own firm's general creditworthiness, and the amount of the facility you require. The next key factor can be significantly a cost significantly controlled by yourself, namely your average DSO/collection period.
So if you turn over your receivables more quickly, that monthly factoring fee stays low, as the charge is based most often on a 30-day collection period. Therefore, your costs would increase if your client paid in 60 days. Companies with good credit extension policies are a winner in the factoring game.
The essence of invoice discounting, aka ' factoring, aka ' invoice discounting, 'is simply the ability to monetize sales directly into cash as you generate revenue.
That in itself is a powerful statement. Where things go wrong is when your business locks itself into a facility that either costs too much, is unwieldy to operate, or doesn't mesh with your day-to-day operations.
By the way, that absolutely doesn't have to be the case! So if banks also margin receivables for your business's cash flow, wouldn't Canada's chartered banks be the optimal solution for cash flow financ?e
Well, they would be that perfect solution if your business qualifies. If you qualify, do you have access to all the credit you need to grow the business when it comes to seasonality, large orders, cash flow bulges, slow-paying clients, etc.?
The answer is that while our banks in Canada provide the best and most low-cost solution, the reality is that not everyone qualifies.
The short answer to the bank versus non-bank funding in Canada when it comes to A/R finance is that the bank bases its decision on your sales, profits, and balance shee.t
Factoring, on the other hand, bases its finance formula only on your sales and the invoices generated from that revenue.
Oh, and by the way, funding is, in fact, the same day. '
And it's only as complex as you want it to be, and the industry itself, unfortunately, does not always do a good job of explaining facilities, sometimes employing smoke and mirrors to hide costs and day-to-day facilitation of the financing.
That's when you need clarity! You have the ability to negotiate what is known as a 'non-recourse facility which allows you to transfer all the credit risk to your financing firm, albeit at a cost.
The key to a successful A/R finance program in Canada is your management of the program.
The type of facility you enter into and your ability to control what you finance and when are critical.
And, as a kicker, our recommendation to clients is ' confidential ' facilities that allow you to bill and collect your own receivables for invoice payment in a manner that allows the competition to do only one thing - figure out where you are getting all that cash!
Remember that the firm financing your receivables is typically more concerned with the overall quality of your customer base, so any firm that is perhaps facing financing challenges is not eliminated from being able to source funding.
Knowing you have a strong underwriting partner to fund your sales is a key success factor in any business.
Finally, the concept of ' notification' and ' verification' should be high on the list of factoring due diligence. These two terms arise from what we at 7 Park Avenue Financial call ' old school ' factoring and involve occasional or constant verification of invoices with your clients.
At 7 Park Avenue Financial, we tend to view this form of factoring as somewhat ' intrusive, 'so our recommended and preferred solution is Confidential Receivable Financing, allowing you to bill and collect your accounts without any notification of clients', suppliers, etc.
RECOURSE VS NON RECOURSE FACTORING SERVICES
The choice between recourse and non-recourse factoring comes down to how much you're willing to pay for overall credit risk if an invoice is unpaid/uncollectible.
Recourse means that there's an additional fee involved for the factoring company to take on credit risk.
Non recourse doesn’t make the factoring company responsible for unpaid invoices.
The price difference may also depend upon whether or not creditworthy customers qualify as well; generally speaking, though, it seems like more expensive options will require higher standards before being approved by banks/ financial institutions, etcetera
WHAT IS AN EXAMPLE OF ARFINANCING / FACTORING TRANSACTION AND THE INVOICE FACTORING RATE AND COST
Example Of Factoring Cost: Invoice Amount - $ 20,000 Factoring fee - 1.5% = $300 In the above example, your firm would get 90% of the 20,000 as soon as you invoice, namely $18,000. The balance of $2000 less the $300 fee is paid to you immediately on payment by your client and recorded as an interest expense/finance cost.
In the above example, you have not incurred debt, become cash flow positive immediately on invoicing, and maintain general creditworthiness with your suppliers, operating costs, etc.
Case Study: Receivables Financing in Action
The Challenge: A growing Canadian industrial equipment supplier, landed their largest contract ever— a $1.2 million order from a major corporation.
While this represented a tremendous growth opportunity, it came with 90-day payment terms that would create a serious cash flow gap. The company needed to purchase materials, hire additional staff, and maintain regular operations while waiting for payment.
The Solution: The firm engaged 7 Park Avenue Financial to implement a Receivables Financing solution. On approval, Within 48 hours of invoice submission, they received an advance of 85% of the invoice value ($1,020,000), allowing them to immediately:
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Purchase required raw materials without depleting cash reserves
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Hire three additional skilled technicians to meet production demands
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Maintain on-time payments to existing suppliers
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Continue pursuing other growth opportunities without cash constraints
The Result: With Receivables Financing in place, the company fulfilled the large order while maintaining healthy cash flow. They strengthened their relationship with the major client by confidently accepting their payment terms, positioning themselves for recurring business.
Most importantly, they transformed what could have been a cash flow crisis into a strategic growth opportunity. When the customer paid at 87 days, the remaining 15% (minus fees) was released, completing the transaction.
CONCLUSION - ACCOUNTS RECEIVABLE FINANCING FOR BUSINESS GROWTH!
Unable to wait for a customer's payment? Accounts receivable factoring allows businesses like yours to get the cash their customers owe your company immediately, allowing your business to fund growth, make payroll, etc.
Waiting for 30-90 days before getting paid isn't feasible in today's business environment and could lead to other financial problems!
All the benefits and less of the hassle! Whether you're a start-up, medium-sized firm, or a large corporation, receivable financing can be a huge part of your business success. Small business owners always have cash flow challenges.
Seek out and speak to 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor, today, who can assist you with the facility that makes the most sense for your unique needs in financing/cash flow management.
FAQ: FREQUENTLY ASKED QUESTIONS
What is the cost of factoring accounts receivable?
Most factoring companies advance 85-90% of the invoice value - this is known as the ' advance rate ' and the borrower will pay approximately 1-2% factoring fee which is expressed as a fee, not an interest rate - Various factors such as credit quality, size of the invoice, industry risk, etc play a part in the final rate decision in a factoring agreement from accounts receivable financing companies.
What percentage of my invoice value can I access through Invoice Financing?
Invoice Financing provides immediate access to 80-90% of your invoice value. The remaining reserve amount, minus the agreed-upon fees, is released to you when your customer pays the invoice in full. This advance rate is significantly higher than many other financing options available to small and medium businesses.
Who qualifies for Invoice Financing in Canada?
Invoice Financing is available to established Canadian businesses with B2B sales and creditworthy customers. Your company's credit standing matters less than the payment history and creditworthiness of your customers, making this an excellent option for growing businesses or those recovering from financial challenges and who want to see what company money is being spent.
What documentation is required to set up Invoice factoring?
Receivables Factoring requires basic business documentation, including articles of incorporation, recent financial statements / company reports - ie what the company owes, etc, accounts receivable aging reports,the company's accounts payable and customer information. The application process focuses more on your customers' creditworthiness than your business history, streamlining approval for many applicants.
When should a business consider using Receivables Factoring instead of a traditional loan?
Receivables Factoring becomes particularly valuable when your business faces seasonal fluctuations, experiences rapid growth, or deals with customers who demand long payment terms. Unlike fixed loans, this financing method scales with your sales volume and doesn't create long-term debt obligations to borrow money.
Where does AR Receivables Factoring fit within a comprehensive business financing strategy?
Receivable-based lending works best as part of a strategic approach to working capital management. It complements other financing tools like lines of credit and equipment financing by specifically addressing the cash flow gap created by accounts receivable, allowing those other instruments to be preserved for different purposes and general financial health.
Why do some businesses prefer Receivable-Based Lending over traditional bank loans?
Receivable-Based Lending offers distinct advantages over traditional financing: faster approval processes, no fixed monthly payments, no collateral requirements beyond the invoices themselves, and financing that grows alongside your business. These benefits make it particularly attractive to growth-oriented companies and those underserved by conventional banking.
How does Trade Receivables Financing impact your relationship with customers?
Trade Receivables Financing can be structured as either notification or non-notification financing. With non-notification arrangements, your customers continue paying you directly and remain unaware of the financing arrangement, preserving your relationship while still providing the working capital benefits.
Why might Trade Receivables Financing cost more than traditional bank financing?
Trade Receivables Financing pricing reflects the immediate access to funds, reduced paperwork, flexibility, and absence of collateral requirements beyond the invoices themselves. The premium represents the value of converting future payments into immediate working capital without creating long-term debt obligations.
How does Customer Invoice Financing support business growth strategies?
Customer Invoice Financing directly supports growth by converting sales into immediate working capital. This allows businesses to accept larger orders, offer competitive payment terms, and invest in expansion without the cash flow constraints that typically limit growth potential for small and medium enterprises.
Can Customer Invoice Financing help my business take advantage of early payment discounts?
Customer Invoice Financing transforms your accounts receivable into immediate cash, allowing you to capture valuable supplier discounts. Many suppliers offer 2-3% discounts for prompt payment, representing a significant annual return on investment when you consider these savings compound throughout your supply chain.
How does A R Receivable Finance improve my business's financial ratios?
A R Receivable Finance enhances your balance sheet by converting receivables into cash without adding debt. This improvement in liquidity ratios can strengthen your position with other lenders, suppliers, and potential investors by demonstrating stronger working capital management and financial stability.
Will AR Receivables Finance allow my business to accept larger contracts?
AR Receivables Finance removes the working capital constraints that often prevent businesses from pursuing larger opportunities. By ensuring immediate access to a high percentage of your invoice values, this financing method enables you to confidently bid on and fulfill larger contracts without cash flow concerns.
How does AR Receivable Finance protect my business from late-paying customers?
AR Receivable Finance insulates your operations from the uncertainty of customer payment timing. Instead of waiting 30, 60, or 90 days for customer payments, you receive the majority of invoice values within 24-48 hours, maintaining stable cash flow regardless of customer payment practices.
Is AR Receivable Financing the same as factoring?
AR Receivable Financing encompasses several financing methods, including factoring, invoice discounting, and asset-based lending. While traditional factoring typically involves selling invoices at a discount with full notification to customers, modern AR Finance offers more flexible arrangements, including non-notification options and selective invoice financing.
Will my customers know I'm using AR Receivable Finance?
AR Receivable Finance can be structured as either notification or non-notification financing. With non-notification arrangements, your customers continue paying you directly and remain unaware of the financing relationship. This preserves your customer relationships while still providing the working capital benefits you need.
How does AR Finance differ from a business line of credit?
AR Finance differs from lines of credit in several key ways: approval is based primarily on your customers' creditworthiness rather than your business history; funding increases automatically as your sales grow; there's no fixed repayment schedule; and the arrangement doesn't create debt on your balance sheet.
Can AR Receivable Finance work alongside other financing methods?
AR Receivable Finance complements other financing methods by specifically addressing the cash flow gap created by accounts receivable. This allows you to reserve traditional loans or lines of credit for other business needs such as equipment purchases, real estate, or long-term growth initiatives.
What makes AR Finance different from traditional bank loans? AR Finance fundamentally differs from bank loans in its structure and benefits:
- No fixed monthly payments or long-term debt obligations
- Approval based on your customers' creditworthiness rather than your credit history
- Financing that grows automatically with your sales volume
- Faster approval and funding processes (typically days versus weeks or months)
- No requirement for real estate or equipment collateral
How does a typical AR Receivable Financing transaction work?
AR Financing follows a straightforward process that converts invoices to cash:
- You deliver products or services to your customer and generate an invoice
- You submit the invoice to your AR Receivable Finance provider
- The provider advances 80-90% of the invoice value within 24-48 hours
- Your customer pays the full invoice amount according to your terms
- Once payment is received, the finance provider remits the reserve (remaining 10-20%) minus their fee
What costs are associated with AR Receivables Finance? AR Receivables Finance costs typically include:
- Discount fee: A percentage of the invoice value (usually 1-1.5% one-time fee for 30-day invoices)
- Service fee: A small processing fee for each invoice submitted
- Some providers charge a monthly minimum fee
- Set-up fees may apply when establishing the relationship
- Unlike interest that compounds over time, these fees are one-time charges per invoice
Citations / More Information
- "The Strategic Role of Accounts Receivable Finance in Business Growth." Journal of Financial Economics, 2022. https://www.journaloffinancialeconomics.com
- Canadian Lenders Association. "Alternative Financing Trends Report 2023." https://www.canadianlenders.org
- FCI (Factors Chain International). "Annual Review of the Factoring Industry 2022." https://fci.nl
- Bank of Canada. "Small Business Financing in Canada: 2023 Report." https://www.bankofcanada.ca
- Ernst & Young. "Working Capital Management: Best Practices for Canadian Businesses." 2023. https://www.ey.com/ca
