Invoice Factoring and Asset Based Lending: Complete Canadian Business Guide | 7 Park Avenue Financial

 

Tweet

You Are Looking For Canadian Business Financing!

Unpacking the Differences:  Factoring vs. Asset-Based Lending

UPDATED09/18/2025

You've arrived at the right address!  Welcome to 7 Park Avenue Financial 

        Financing & Cash flow are the  biggest issues facing businesses today 

               Unaware / Dissatisfied with your financing options?

Call Now!  - Direct Line  - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs

Email  - sprokop@7parkavenuefinancial.com

 

 

 

"Cash flow is the lifeblood of any business. Without it, you can't grow, you can't compete, and ultimately, you can't survive." - Richard Branson

  

 

Asset-Based Lending and Invoice Factoring: Alternative Financing Options Explained  

 

 

  

Cash Flow Crisis? Your Assets Hold the Answer  

 

 

Outstanding invoices pile up while bills demand immediate payment – a familiar nightmare for growing businesses.

 

Traditional banks say "no" or demand months of paperwork, leaving you trapped between growth opportunities and financial obligations.

 

Let the 7 Park Avenue Financial team show you how Invoice factoring and asset based lending turn your business assets into instant working capital, providing the cash flow solution you need within days, not months.

 

 

Invoice factoring and asset-based lending are reshaping business financing in Canada. Traditional bank loans are often unavailable to small and medium-sized businesses. That gap has fueled demand for alternative financing solutions.

 

 

Asset-based lending is no longer rare. More Canadian companies are turning to these facilities as cash flow challenges grow. Economic uncertainty, rising costs, and growth goals drive businesses to financing solutions outside of banks.

 

 

The key question remains: which is best for your business—factoring or asset-based lending?

 

  

What Is Invoice Factoring?  

 

 

Invoice factoring lets businesses sell outstanding invoices to a commercial finance company in exchange for immediate cash.

 

In this structure, the factoring company manages and collects receivables. Unlike bank financing, invoices are sold rather than assigned under a general security agreement.

 

The main advantage is quick access to working capital. Factoring unlocks cash without adding debt to the balance sheet. Instead, businesses monetize accounts receivable.

 

 

Small and medium-sized businesses use factoring to cover expenses and fund growth. It’s not debt financing but an advance against unpaid invoices.

 

  

The Invoice Factoring Process  

 

 

Clients often ask, “How do factoring loans work?”

 

They are not loans. Businesses sell receivables as revenue is generated. Cash advances typically range from 80 to 90 percent of invoice value. Owners choose how much to factor based on working capital needs.

 

 

What Does Factoring Cost?

 

 

Costs are structured as fees, not interest rates. Typical factoring fees range from 0.75 to 1.5 percent of invoice value. Businesses with strong margins and fast turnover are the best candidates.

 

 

The biggest cost factor is how long funds remain outstanding. Faster collections reduce financing costs significantly.

 

 

  

Factors Influencing Pricing  

 

 

Other cost drivers include:

 

 

• Size of the facility.

• Credit quality of customers.

• Receivable turnover and days sales outstanding (DSO).

 

 

Bank credit lines remain cheaper. Yet thousands of Canadian firms cannot qualify for the credit they require, making factoring a practical option.

 

  

Is Confidential Receivable Financing Best?  

 

Confidential receivable financing allows businesses to bill and collect invoices directly. Clients gain the cash flow advantages of factoring without customer notification.

 

This option collateralizes assets such as receivables. It also supports financing for inventory, equipment, and other assets.

 

For firms unable to secure bank financing—or those relying on credit cards or personal funds—factoring and asset-based lending are logical next steps.

 

  

What Is Asset-Based Lending?  

 

 

Asset-based lending (ABL) provides loans or credit lines secured by business assets. Collateral may include receivables, inventory, equipment, and even real estate.

 

 

ABL loans are flexible. Businesses draw funds as needed and scale financing as sales grow. Unlike factoring, assets remain under company ownership, with lenders advancing funds based on asset value.

 

 

Difference Between Factoring and Asset-Based Lending

 

 

The primary difference is ownership. In factoring, invoices are sold. In asset-based lending, assets remain owned but serve as collateral.

 

Factoring companies often manage collections. In ABL, businesses retain control of customer relationships. Confidential invoice financing bridges both worlds—firms keep control while accessing cash flow.

 

Another distinction is cost timing. Factoring fees apply at the point of sale. ABL interest accrues only when funds are drawn.

 

 

 

  

 

Which Finance Option Is Right for Your Business?  

 

 

Choosing between factoring and ABL depends on:

 

 

• Industry type.

• Cash flow needs.

• Growth plans.

 

 

Factoring suits businesses with large invoice volumes and urgent cash flow requirements. It’s ideal for firms needing immediate funds to cover operating expenses.

 

 

Asset-based lending works better for companies requiring comprehensive financing facilities. It combines receivables, inventory, and assets into one scalable credit line.

 

 

Both solutions solve cash flow problems and support business growth.

 

  

Key Takeaways: Invoice Factoring Versus Asset-Based Lending  

 

 

• Factoring provides immediate cash by selling invoices to third-party finance companies.

• Asset-based lending secures loans or credit lines with business assets.

• Factoring works best for fast cash needs and invoice-heavy firms.

• ABL offers larger, ongoing facilities for companies needing scalable credit.

• Both provide alternatives when banks deny traditional financing.

 

  

Did You Know?  

 

 

• Alternative financing is growing as Canadian firms face tighter bank credit.

• Invoice factoring provides immediate cash without adding balance sheet debt.

• Factoring fees range from 0.75% to 1.25% per invoice, depending on receivable turnover.

• Confidential receivable financing allows businesses to collect from customers directly.

• Asset-based lending secures credit against receivables, inventory, and equipment.

• ABL loans are flexible and scale as sales and assets increase.

• Factoring is ideal for quick cash flow needs.

• ABL is better for larger, ongoing financing requirements.

• Both options give firms bank alternatives to support operations and growth.

 

  

  

Conclusion: Asset-Based Lending Versus  Factoring    

 

 

Both factoring and asset-based lending are powerful alternatives to bank financing. They give businesses reliable cash flow solutions for growth and stability.

 

Work with a trusted Canadian financing advisor such as 7 Park Avenue Financial.

 

With proven experience in asset-based lending and invoice factoring, we help companies secure the right funding strategy for success.

 

  

FAQ  

 

 

How does invoice factoring and asset based lending improve cash flow predictability? Invoice factoring and asset based lending convert unpredictable payment timing into immediate, consistent cash flow, allowing you to meet payroll, pay suppliers, and take advantage of early payment discounts without waiting for customer payments.

What competitive advantages does invoice factoring and asset based lending provide? Invoice factoring and asset based lending enable you to offer extended payment terms to customers, accept larger orders, and invest in growth opportunities while maintaining strong working capital position.

How does invoice factoring and asset based lending help during seasonal fluctuations? Invoice factoring and asset based lending provide flexible funding that scales with your business volume, offering higher funding during peak seasons and lower costs during slower periods.

Why is invoice factoring and asset based lending better than credit lines for growing businesses? Invoice factoring and asset based lending grow automatically with your sales volume and don't require personal guarantees or restrict business operations like traditional credit facilities often do.

How does invoice factoring and asset based lending support business expansion? Invoice factoring and asset based lending provide the working capital needed to fulfill larger contracts, enter new markets, or acquire equipment without depleting existing cash reserves or waiting for traditional loan approvals.

 

 

 

 

Statistics :   Invoice Factoring and Asset Based Lending

 

 

• The global invoice factoring market reached $3.2 trillion in 2023
• 80% of businesses using invoice factoring report improved cash flow within 30 days
• Asset based lending can provide up to 85% advance rates on eligible receivables
• Canadian businesses using alternative financing grow 23% faster than those relying solely on traditional banking
• Invoice factoring volume in Canada increased by 15% in 2023

 

 

 

Citations

 

 

1. Canadian Association of Commercial Finance. "Alternative Lending Market Report 2023." Toronto: CACF Publications, 2023. https://www.cacf.ca
2. Business Development Bank of Canada. "SME Financing in Canada: Trends and Opportunities." Montreal: BDC Research, 2023. https://www.bdc.ca
3. Factors Chain International. "Global Factoring Statistics 2023." Amsterdam: FCI Publications, 2023. https://www.fci.nl
4. Statistics Canada. "Business Credit Conditions Survey, Fourth Quarter 2023." Ottawa: Government of Canada, 2024. https://www.statcan.gc.ca
5. Commercial Finance Association. "Asset Based Lending and Factoring Survey Results." New York: CFA Publications, 2023. https://www.cfa.com
6. 7 Park Avenue Financial ." Asset-Based Lending in Canada"https://www.7parkavenuefinancial.com/abl-lending-asset-based-loan-rates.html
7. Medium "Business Asset Based Loans: Canadian Business Funding Revolution" https://medium.com/@stanprokop/business-asset-based-loans-canadian-business-funding-revolution-ed3944cb8cbb