Factoring in Canada: Your Guide to Financial Cash Flow Freedom | 7 Park Avenue Financial

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 "Factoring companies in Canada are revolutionizing how businesses access and manage their finances, offering a beacon of hope for those entangled in the web of cash flow challenges."

 "Unlock cash tied up in invoices today – say goodbye to waiting and hello to growth!"

7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer FACTORING solutions that solve the issue of cash flow and working capital  – Save time, and focus on profits and business opportunities








There's nothing like a ' Danger Ahead' sign up the road to catch a Canadian business owner's attention. That's why we're pointing out several things today concerning factoring companies in Canada, how they work, and why ar (accounts receivable) finance from a factoring company may be the best thing that ever happened to you... or the worst. Talk about a balanced perspective!


Factoring companies have emerged as key players in Canadian Business Financing, offering a lifeline to businesses needing immediate cash flow solutions. By purchasing accounts receivable at a discount via a factoring agreement, business factors provide a fast, efficient means for companies to unlock the cash in their accounts receivables via factoring invoices/invoice payments.


This helps companies manage their cash flow and operational expenses with greater flexibility and take advantage of growth opportunities without the wait or the traditional hurdles of bank financing.

What is accounts receivable (AR) financing?


More often than not, when Canadian firms look to AR Finance as an alternative, it’s out of an immediate need, usually almost survival. They might find themselves in several positions, including restructuring their firm or the debt, downsizing, or addressing the worst and best problem of all—hypergrowth with solid revenue increases.

From our vantage point, factoring companies in Canada often address' the short-term fix' stage when it comes to short-term cash advance needs involving current assets typically made of receivables and inventories.


The 3 most common situations that caused these challenges are :

Poor management (that might be you, unfortunately)

Being undercapitalized


So how does a traditional factoring program work, and what are the pros and cons of working with factoring providers for your cash flow needs?




Simply speaking, the factoring process is an immediate solution that makes cash available for your firm for your unpaid invoice value—at a time when pretty well no one else will give you the amount you need if they'll give you any at all. At 7 Park Avenue Financial, we will ensure you are not in any long-term contract or subject to termination fees or monthly minimums, as is the case with many factoring companies.


By the way, your newfound cash allows you to take advantage of early payment discounts from your suppliers, offsetting the factoring fees!!


Non-recourse factoring is also available, allowing you to ensure that you can transfer bad debt and collection risk, if you choose, to the factor. Monthly revenue requirements are not an issue in factoring—if your business sells to another business, you are eligible for funding!

When you implement the solution, you're in a position, albeit at a cost, to grow your business again, pay and hire people, and take advantage of supplier discounts and price advantages. All of this is done without debt and without diluting your firm's ownership.

So, let's recap how things work, emphasizing the good and somewhat 'unfavourably viewed ' aspects of this method of Canadian business financing.


Here's how it works: You typically receive approximately 90% of all unpaid invoices you submit, and you can submit pretty well as often as you like, even daily. The bottom line is as you sell, you get cash: same business day- or the next day within 24 hours at the latest - with no application fee or additional fees for your facility.

So, what could be the downside of this ' traditional' factoring? The business owner does not always view the daily mechanics positively; credit limits are sometimes set on your accounts. In most cases, the factoring firm provides collection services.


Generally, the invoice factoring finance cost for outstanding invoices is in the 1.5%  range, meaning that if you finance a $10,000.00 invoice for 30 days, you have a financing charge of $150.00.


Is that a lot? We’ll let you decide once you benchmark it against the advantages of your AR Program. Factoring fees are not expressed as an interest rate, which many misunderstand —they are simply a fee or factoring discount.

Advance rates for a factoring service tend to be in the 90% range, meaning you can borrow more on your outstanding invoices than a bank loan. An invoice factoring service cannot compete with a bank on ' rate ' and cost of financing, but it is an easy and efficient method to access the working capital you need when your firm doesn't qualify for all the bank financing it needs.


How is invoice factoring different from a bank loan? Your credit score is significant for a traditional bank loan but has little importance or effect on qualifying for a receivables loan facility.   Factoring services are, in effect, a subset of asset-based lending that focuses on assets, not rations, covenants, outside collateral, etc., as banks require. Banks in Canada usually require a minimum credit score of 650 to receive their low rates.

While a term loan from a bank has a fixed repayment term, factoring is flexible, and you are only paying for what you use and draw down on. Instant access and quick access to cash are the main features of third-party receivable financing. All types of businesses can apply.

AR Finance is probably the most famous aspect of asset-based lending in Canada and is utilized by thousands of companies. A bank loan solution will also require a specific ' time in the business ', typically two years or so, while factoring accounts receivable can be achieved even for startups.



Many industries, such as the trucking or staffing industry as examples, are huge uses of factor finance. As financial institutions, banks will not offer ' spot factoring, 'which is essentially selective invoice discounting and available from most factors for invoices under 90 days- allowing you to get paid and receive cash for your business needs.

When factoring credit checks and credit history on your firm are not the focus, unlike bank credit lines, which focus on profits, balance sheets, and historical cash flow.

 As a form of financing where the business strength of your balance sheet or income statement is not the focus, factoring becomes a welcome solution for many businesses looking to grow without running into a constant cash flow issue around slow-paying customers! The funding process from invoice financing companies delivers same-day funding when cash flows are critical to your day-to-day operations.

Potential new or larger customers present no problem when factor financing is considered as the invoice payment for a receivable finance solution, which takes care of that! Access to cash from customer invoices is the heart and soul of any small business.

The application process for a factoring facility is easy and quick, and there is no specific requirement for any annual revenue size. Your receivable invoices are the main focus, based on their overall general credit quality and your experience with the customer. Your discount rate and any miscellaneous processing fees are reviewed when you enter into the factoring agreement. A good facility will have no minimum volume fees.

Is there a better way to enter the right program with factoring companies in Canada? One method is the confidential invoice financing facility. Here, you get all the benefits of AR Finance, but you also bill and collect your own receivables.


How do you know when you're ready to consider such a program for the best factoring solution? A few basic ongoing calculations of your sales to receivables, collections and inventory turnover analysis should allow you to determine whether you have a financing need that the traditional chartered bank solution might not serve.

Remember, this type of financing can often be bundled together in an asset-based line of credit that margins both receivables and inventory. A line of credit is, of course, not a ' business loan ' in the sense of a term loan—you are simply cash flowing from your accounts receivable.






  1. Invoice Factoring: This process involves businesses selling their accounts receivable (invoices) to a factoring company at a discounted rate. Essentially, it transforms credit sales into immediate cash flow, enabling businesses to maintain operations without waiting for customers to pay within their credit terms.

  2. Advance Rate: Factoring companies provide an upfront percentage of the invoice's value, usually between 70% to 90%. This rate depends on the risk assessment of the debtor's ability to pay, highlighting the importance of the quality of a business's receivables.

  3. Fees and Costs: The factoring company charges fees for their services, which can vary widely. These fees are often determined by the volume of invoices factored, the creditworthiness of the clients' customers, and the invoice payment terms. Understanding these costs is crucial for evaluating the financial viability of factoring for a business.

  4. Recourse vs. Non-Recourse Factoring: In recourse factoring, the business must buy back any invoices on which the factoring company cannot collect payment. Conversely, non-recourse factoring absolves the business of this responsibility, although it usually comes with higher fees due to the increased risk the factoring company assumes.

  5. Impact on Cash Flow and Business Growth: Factoring can significantly improve a company's cash flow by providing immediate funds that can be reinvested in the business rather than waiting for customer payments. This immediate access to capital can be pivotal for covering operational costs and capitalizing on growth opportunities, making it an attractive option for businesses looking to expand or stabilize their operations.


Factoring financing companies offer small and medium-sized businesses a method to access cash flow if they cannot obtain some of all the bank credit they need to run and grow a business. Factoring receivables via invoice factoring services improves your business’s cash flow and puts you in charge of your business’s financials.

Call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor, to get the straight goods on those warning signs about invoice factoring companies.



What is a factoring company?

A factoring company is a finance company that purchases another company's invoices against the business's accounts receivable.


What are the benefits of AR finance?

The key benefit of A/R financing is that it facilitates access to immediate cash flow on future sales invoices.


How Much Does a Factoring Company Charge?

A factoring company charges businesses a fee, a discount they charge for advancing funds on invoices. For example, if the factoring fee is 1% on a $30,000 invoice, financing the invoice costs $300. The longer the invoice is outstanding until the customer pays, the larger the fee, so asset turnover and staying on top of collections are essential. The longer it takes your customer to pay off the invoice fully to the factoring company, the higher the rate will be.



How do factoring companies in Canada improve business cash flow?

Full service factoring services purchase your outstanding invoices, providing immediate cash that can be used for operational expenses rather than waiting for customers to pay.



What are the typical fees associated with factoring services in Canada?

Fees vary but are generally based on the invoice amount, your client's creditworthiness, and the terms of the factoring agreement.



How does invoice factoring differ from a bank loan?

Invoice factoring is a financial solution that provides immediate funds based on sales you've already made without incurring debt, unlike traditional bank loans, which are based on creditworthiness and often require collateral.



Can factoring help small businesses and SMEs grow?

Yes, by converting sales into instant cash with the right factoring company, factoring allows you to reinvest in your business more quickly, supporting growth and stability.



Is invoice factoring considered a loan?

No, accounts receivable financing via factoring involves selling your accounts receivable at a discount for immediate cash, not a loan, so it doesn't add debt to your balance sheet.



How quickly can I access funds through a factoring company in Canada?


Upon approval of a factoring agreement, you can typically access funds within 24 to 48 hours after submitting your invoices for factoring.



Are all industries eligible for factoring services in Canada?

Most industries can qualify, especially those with business-to-business transactions or government invoices, but specifics can vary between factoring companies.



What's required to qualify for factoring in Canada?


Requirements for invoice factoring include having invoices for completed work or sales to creditworthy B2B or government customers.



How do recourse and non recourse receivables factoring differ?

Recourse factoring requires you to buy back unpaid invoices, while non-recourse factoring does not, offering less risk at a higher cost.



Can I choose which invoices to factor in?

Yes, most factoring companies in Canada allow you to select specific invoices to factor in, providing flexibility in managing your cash flow.



How do factoring companies determine the advance rate for my invoices?

The advance rate, typically between 70% and 90%, is determined by evaluating your customers' creditworthiness and the overall risk associated with your invoices. Factoring companies charge a fee on the advance versus an interest rate calculation.



What happens if my customer doesn't pay the factored invoice?

In recourse factoring, you'd be responsible for repaying the advanced amount. In non-recourse factoring, the factoring company absorbs the loss. Most factoring companies offer both choices to clients.



Can using a factoring company affect my business relationships?

Factoring is a standard financial tool, and when managed properly, it should not negatively impact your business relationships. Transparency with your customers about the factoring process with factoring companies in Canada can help maintain trust when you have superior customer service in a financing partner.


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Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil