Struggling with cash flow because customers take weeks—or months—to pay?
Factoring receivables, also called accounts receivable financing or invoice financing, is a proven way for Canadian businesses to unlock cash tied up in unpaid invoices.
It’s fast, flexible, and based on your customers’ creditworthiness, not yours.
Accounts receivable factoring is a financial service where businesses sell their outstanding invoices to a factoring company in exchange for immediate cash; this is sometimes referred to as receivable factoring.
Accounts receivable financing frees up cash flow by converting receivables into immediate funds, providing liquidity for daily operations and business growth.
What Is Factoring Receivables?
Factoring is when you sell your invoices to a factoring company (the “factor”) at a discount. The factor provides an advance rate, typically 80–90% of the face value of the invoice, within 24 hours.
The lender advances this portion as a lump sum, and the remaining balance is paid to you after your customer pays, minus the factoring fee.
Submitting invoices promptly is key to accessing funds quickly.
This financing arrangement is a type of accounts receivable financing or accounts receivable loans, allowing you to unlock cash tied up in unpaid invoices.
The process works by submitting invoices to the factor, receiving an advance based on the payment terms agreed with your customers, and then getting the remainder once the invoices are paid.
This helps businesses manage cash flow and support growth, especially when dealing with slow-paying customers.
Understanding Accounts Receivable
Accounts receivable represent the outstanding invoices or payments owed to your business by customers who have purchased goods or services on credit.
These unpaid invoices are a key asset on your balance sheet, but until they are paid, they can tie up the liquidity required to cover everyday operating expenses and invest in new opportunities.
Managing accounts receivable effectively is essential for maintaining a healthy cash flow cycle, as delays in customer payments can create financial strain and limit your ability to grow.
This is where accounts receivable financing, also known as receivable financing or invoice factoring, becomes invaluable.
By leveraging your outstanding invoices through a financial arrangement with a lender, you can quickly access immediate cash flow without waiting for customers to pay.
This financing method is especially useful for businesses dealing with long payment cycles, as it allows you to cover expenses, submit invoices, and receive payment right away—helping you keep operations running smoothly and supporting your business’s ongoing growth.
Why Canadian Businesses Choose Accounts Receivable Financing
1. Improve Cash Flow – Get paid in days, not months.
2. Access Working Capital – Fund operations, marketing, or expansion.
3. Eliminate Collections – The factor manages payment follow-up.
4. Reduce Bad Debt Risk – Many factors offer credit protection.
5. Stay Flexible – Approval is based on your customers’ credit, not your own.
How the Factoring Process Works
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Apply – Share your business details and unpaid invoices.
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Approval – Factor reviews your customers’ credit.
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Submit Invoices – Upload eligible invoices.
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Receive Advance – 80–90% upfront, often in 24 hours.
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Factor Collects – They handle payment from customers.
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Final Payment – You get the balance minus fees.
Factoring is a form of asset based lending, where accounts receivable and sometimes other assets can be used as collateral for an asset based loan or receivable loans, providing flexible financing options to improve cash flow and support business growth.
The Role of a Factoring Company
A factoring company is a specialized financial institution that helps businesses unlock the value of their accounts receivable.
By purchasing your outstanding invoices at a discount, the factoring company provides you with immediate cash, improving your cash flow and giving you the flexibility to manage operational costs or invest in growth.
The factoring company then takes on the responsibility of collecting payments directly from your customers, streamlining your collection process and reducing administrative burdens.
. By partnering with a reputable factoring company, you can benefit from immediate cash flow, professional support, and the confidence to focus on what matters most—growing your business.
When to Use Factoring
Factoring is ideal for Canadian companies that:
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Have slow-paying B2B customers
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Experience seasonal cash flow gaps
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Need non-bank financing quickly
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Want to avoid taking on more debt
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Offer extended payment terms to their customers and want to maintain steady cash flow
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Want access to a flexible credit line determined by the value of their outstanding receivables
Costs of Factoring in Canada
Receivable financing rates typically range from 0.75% to 1.5% of the invoice value, plus any agreed service fees.
The total cost of receivables financing depends on the size of the facility, risk level, and other transaction-specific factors.
While you receive slightly less than the invoice total, the speed and reliability of funding can outweigh the cost.
Real-World Impact: Improving Cash Flow
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Manufacturers use factoring to buy raw materials without waiting for receivables.
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Service providers use it to fund marketing and hire staff.
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Distributors use it to purchase inventory during peak seasons.
Choosing the Right Factoring Partner
Look for a factoring company with:
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Experience in your industry
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Transparent pricing and no hidden fees
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Flexible recourse and nonrecourse options
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Strong reputation and responsive service
Factoring vs. Other Financing Options
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Factoring
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Bank Loan
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Line of Credit
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No new debt
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Adds liability
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Flexible draw-down
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Based on customer credit
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Based on your credit
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Based on your credit
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Fast approval
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Slow approval
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Requires good credit
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Other financing methods, such as an asset based loan, are also available for businesses seeking to unlock the value of their receivables.
Asset based loans leverage company assets like receivables to provide working capital, support growth, and address liquidity needs, offering a flexible alternative to traditional bank loans.
Case Study: Benefits of Receivable Financing Companies
Company: (Toronto-based manufacturer)
Challenge: The company faced severe cash flow constraints with $500,000 in outstanding invoices and net-60 payment terms from major clients. Traditional bank loans were denied due to rapid growth outpacing credit facilities, leaving them unable to purchase raw materials for new orders.
Solution: Partnered with a receivable financing company that advanced 85% of invoice values within 24 hours. The factor handled all credit checks and collections while providing monthly customer payment reports and credit recommendations.
Results: Within 90 days the company increased monthly revenue by 40%, hired 12 additional employees, and secured three major new contracts. The predictable cash flow enabled strategic planning and eliminated the stress of payment delays, with the business owner reporting significantly improved sleep and decision-making confidence.
Key Takeaways
- Invoice Purchase Model: Receivable financing companies buy your invoices outright, providing immediate cash while assuming collection responsibility, eliminating payment waiting periods.
- Customer Credit Focus: Success depends primarily on your customers' creditworthiness rather than your business credit, making approval faster and more accessible.
- Advance Rate Structure: Companies typically advance 80-90% of invoice values immediately, holding reserves until customer payment completion.
- Factor Fee Pricing: Costs range from 1-5% monthly based on customer credit quality, invoice aging, and volume commitments.
- Flexible Funding Scaling: Financing automatically adjusts with sales volume—higher sales generate more funding, lower sales reduce costs proportionally.
Conclusion and Next Steps
Accounts receivable financing is a powerful tool for businesses looking to improve cash flow, manage operational expenses, and support ongoing growth.
By understanding how accounts receivable and receivable financing work, and by recognizing the value that factoring companies bring, you can make informed decisions about your financing strategy.
When evaluating accounts receivable financing companies, pay close attention to factors such as financing rates, advance rates, and any hidden fees that may affect your bottom line. It’s also important to consider the provider’s reputation, industry expertise, and commitment to customer service to ensure a successful financial partnership.
Taking the next step to explore accounts receivable financing options can unlock the value of your outstanding invoices, provide the financial flexibility you need, and help you achieve your business goals.
Whether you’re a small business seeking to cover expenses or a larger company aiming to support growth, accounts receivable financing offers a reliable way to access funds, improve your cash flow, and stay ahead in today’s competitive marketplace.
For Canadian business owners and financial managers who need immediate access to working capital but face traditional banking limitations, 7 Park Avenue Financial is the accounts receivable financing expert.
This trusted Canadian business financing advisor understands your cash flow challenges and provides fast, flexible funding solutions that support sustainable business growth.
FAQ
How do receivable financing companies improve cash flow predictability? Receivable financing companies provide immediate cash conversion of invoices, eliminating the uncertainty of customer payment timing and creating predictable working capital for operational planning.
What competitive advantages do receivable financing companies offer over banks? Receivable financing companies approve funding based on customer creditworthiness rather than business credit, provide faster funding, require minimal paperwork, and offer flexible terms that adjust with sales volume.
How do receivable financing companies help businesses grow faster? Receivable financing companies unlock trapped capital from unpaid invoices, enabling businesses to take larger orders, hire additional staff, purchase inventory, and pursue growth opportunities without waiting for customer payments.
What operational benefits do receivable financing companies provide beyond funding? Receivable financing companies often handle collections, provide credit checking services, offer customer payment insights, and reduce administrative burdens associated with accounts receivable management.
How do receivable financing companies help businesses during economic uncertainty? Receivable financing companies provide stable funding that fluctuates with sales rather than fixed debt payments, offering financial flexibility during economic downturns while maintaining access to working capital.
What exactly are receivable financing companies and how do they work? Receivable financing companies purchase your outstanding invoices at a discount, providing immediate cash while assuming responsibility for collecting payment from your customers, essentially converting receivables into instant working capital.
Are receivable financing companies the same as factoring companies? Receivable financing companies and factoring companies are essentially the same, both purchasing invoices to provide immediate funding, though some companies offer additional services like credit protection and collections management.
Do receivable financing companies require personal guarantees or collateral? Receivable financing companies typically require minimal personal guarantees since the invoices themselves serve as collateral, making this a less risky option compared to traditional business loans requiring extensive personal assets.
Citations
Berman, K., Knight, J., & Case, J. (2021). Financial Intelligence for Entrepreneurs. Harvard Business Review Press. https://hbr.org
Fraser, L. M., & Ormiston, A. (2022). Understanding Financial Statements. Pearson Education. https://pearson.com
Government of Canada. (2023). "Small Business Financing Statistics." Statistics Canada. https://statcan.gc.ca
Miller, R. T. (2023). "Cash Flow Management in Canadian SMEs." Journal of Business Finance, 45(3), 234-251. https://businessfinancejournal.com
National Association of Commercial Finance Brokers. (2024). Annual Industry Report 2024. NACFB Publications. https://nacfb.org
7 Park Avenue Financial."Accounts Receivable Financing Cash Solutions " https://www.7parkavenuefinancial.com/accounts-receivable-finance-factoring-financing.html
