Accounts Receivable Funding: Transform Unpaid Invoices Into Immediate Working Capital | 7 Park Avenue Financial

 

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ACCOUNTS RECEIVABLE FACTORING SOLUTIONS IN CANADA

UPDATED 10/28/2025

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South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8

 

 

 

 

"Cash flow is the lifeblood of any business. Without it, you can't grow, you can't hire, you can't invest—you simply can't succeed." — Richard Branson, Founder of Virgin Group

 

  

 

ACCOUNTS RECEIVABLE FINANCING AND FACTORING IN CANADA: A PRACTICAL GUIDE FOR BUSINESS OWNERS  

 

 

 

A significant portion of receivable financing in Canada takes place through financial factoring.

 

Many business owners and financial managers remain cautious about this method due to unfamiliarity or misconceptions. Understanding the fundamentals of factoring and A/R financing helps companies regain control of their cash flow and financing strategy.

 

 

 

Breaking the Cash Flow Stranglehold

 

 

 

You've made the sale and delivered the goods, but your bank account sits empty while invoices age.

 

Every day without payment means payroll stress, missed opportunities, and sleepless nights wondering if you can keep the lights on.

 

Let the 7 Park Avenue Financial team show you how Accounts receivable funding breaks this cycle by turning your outstanding invoices into immediate cash, letting you run your business on your terms instead of your customers' payment schedules.

 

 

 

2 UNCOMMON TAKES ON ACCOUNTS RECEIVABLE FUNDING

 

 

 

1. Accounts receivable funding actually improves your negotiating power with suppliers because you can take advantage of early payment discounts that typically save 2-3% on purchases—often more than the cost of the funding itself, creating a net positive cash position.

2. Most business owners don't realize that AR funding is one of the few financing options where your approval odds increase as you grow because more invoices and bigger customers make you more attractive, unlike traditional loans where rapid growth often raises red flags with conservative lenders.

 

 

 

Canadian Alternative Lending Growth: The non-bank business financing market has grown 25% year-over-year (Canadian Lenders Association, 2024).

 

 

  

 

ACCOUNTS RECEIVABLE FINANCING: A LEADING ALTERNATIVE LENDING SOLUTION  

 

 

 

Alternative financing, including accounts receivable finance, has become a global movement within asset-based lending.

 

Companies of all sizes—from startups to established corporations—now rely on factoring to improve working capital. This financing option is especially valuable for firms facing slow customer payments or limited bank credit.

 

  

 

WHAT IS FACTORING? HOW DOES ACCOUNTS RECEIVABLE FINANCING WORK?  

 

 

 

Factoring is a structured financing solution tied directly to your receivables.

 

Traditional credit metrics such as income statements, debt-to-equity ratios, or personal guarantees have minimal impact on approval. Instead, the receivables themselves secure the advance, making it a cash flow monetization tool rather than a traditional loan.

 

 

• Your receivables act as collateral.

• Advances typically range from 80% to 90% of invoice value.

• Funds become available immediately upon invoice verification.

 

 

  

WHY IS FACTORING POPULAR AMONG CANADIAN BUSINESSES?  

 

 

 

 

Factoring offers immediate liquidity once a sale is made. Typical advance rates of 90% provide greater access to capital compared with traditional bank margins of roughly 75%. For many firms, the key benefit is simple—faster access to cash without new debt.

  

 

FACTORING AS A NON-BANK FINANCING OPTION  

 

 

 

 

Businesses deemed “higher risk” by banks can still qualify for factoring. Non-bank lenders evaluate receivables quality rather than overall corporate creditworthiness. This flexibility opens doors for firms unable to meet strict banking criteria.ANK FINANCING VERSUS  FACTORING

 

 

 

Banks prioritize a company’s overall financial profile and collateral diversity. In contrast, factoring focuses solely on receivables as the primary funding source. While banks offer lower rates, factoring provides speed and accessibility, often outweighing cost considerations for growing businesses.

 

  

 

GETTING COMFORTABLE WITH FACTORING  

 

 

 

Many firms hesitate because traditional factoring notifies customers of third-party involvement. The solution is confidential receivable financing, allowing your company to bill and collect as usual while using receivables to secure funding. This keeps financing private and fully under your control.

 

 

• Confidential factoring maintains client relationships and discretion.

• Non-recourse factoring transfers credit risk to the factor, protecting you from customer defaults.

• Typical fees range from 1% to 2% of invoice value, depending on payment speed and credit quality.

 

 

Factoring is an efficient short-term working capital tool. The faster your customers pay, the lower the cost. In industries where 60- to 90-day terms are common, this flexibility is essential.

 

  

 

A/R FINANCING AS PART OF AN ASSET-BASED CREDIT LINE  

 

 

 

 

Companies needing additional capital can expand beyond receivable factoring through asset-based lending (ABL). This structure combines receivables, inventory, equipment, and even real estate into one revolving credit facility. ABL financing delivers higher borrowing power and flexibility for firms with multiple asset types.

 

 

Factoring also provides balance sheet advantages. Unlike a loan, it does not create additional long-term debt—preserving financial ratios and improving liquidity.

 

  

 

Case Study: ABC Manufacturing Ltd.

FROM THE 7 PARK AVENUE FINANCIAL CLIENT FILES

  

 

 

 

Challenge:

ABC Manufacturing, an Ontario-based industrial component supplier, faced severe cash flow pressure due to 60-day payment terms from large automotive and aerospace clients. A new $250,000 order risked exhausting their cash reserves, threatening payroll and ongoing operations.

 

 

Solution:

7 Park Avenue Financial provided accounts receivable funding, advancing 85% of invoice values within 24 hours based on customer creditworthiness. ABC received $212,500 immediately after delivering the order, with the remaining balance (minus a 2.5% fee) paid when the customer settled the invoice.

 

 

Results:

• Accepted and fulfilled large orders without cash strain

• Increased annual revenue by 145%

• Secured 2% supplier discounts and hired three new staff

• Boosted efficiency by 30% through new equipment investment

• Qualified for a traditional bank credit line after 18 months of sustained growth

 

 

Summary:
Accounts receivable funding enabled ABC Manufacturing to overcome cash flow challenges, support rapid growth, and transition to conventional financing.

 

  

 

KEY TAKEAWAYS  

 

 

• Factoring converts receivables into immediate cash, improving liquidity.

• Approval focuses on receivables quality—not corporate financial strength.

• Advance rates typically reach 80–90% of invoice value.

• Confidential and non-recourse factoring options preserve client relationships and reduce risk.

• A/R financing can be integrated into asset-based lending for higher credit limits.

• Factoring is not debt—it’s a working capital tool that strengthens your balance sheet.

 

 

Average SME Payment Terms: 55–60 days, highlighting the importance of receivable financing.

  

 

 

CONCLUSION: ACCOUNTS RECEIVABLE FACTORING AS A GROWTH TOOL  

 

 

 

Factoring and receivable financing continue to grow as vital working capital solutions for Canadian businesses. For firms seeking to improve cash flow, reduce payment delays, and access non-bank capital, factoring offers speed, flexibility, and reliability.

 

 

7 Park Avenue Financial is a trusted Canadian business financing advisor with deep expertise in asset-based lending, factoring, and working capital management. Contact us to explore the right receivable financing solution for your company.

 

  

 

FAQ  

 

 

 

What is accounts receivable funding and how does it work for manufacturers?
It provides 75–90% of invoice value within 24–48 hours after goods are delivered. The funder verifies invoices, advances cash, and releases the balance—minus fees—once customers pay. This bridges the cash flow gap between production and customer payment cycles.

 

Who qualifies for accounts receivable funding in Canada?
B2B and government-invoicing firms qualify most readily, including:

• Manufacturers and distributors

• Staffing and recruitment agencies

• Transportation and logistics companies

• Professional services firms

• Wholesalers and commercial contractors
  Approval depends on customer creditworthiness, not your company’s credit score.

 

 

When should a business choose accounts receivable funding instead of a bank loan?

 

It’s best when a business needs quick, flexible capital and faces:

• Limited operating history or poor credit

• Rejected bank loan applications

• Rapid growth or seasonal cash shortages
  Funding decisions are based on customer payment reliability, not traditional financial metrics.

 

 

Where does accounts receivable funding make the biggest operational impact?

It strengthens working capital by shortening the cash conversion cycle. Businesses use it to:

• Cover payroll and day-to-day expenses

• Purchase inventory and raw materials

• Take advantage of supplier discounts

• Manage seasonal or growth-related cash flow gaps

 

 

Why do staffing agencies rely heavily on accounts receivable funding?
They must pay workers weekly while clients pay in 30–60 days. AR funding provides instant cash against invoices, ensuring payroll stability and supporting expansion without waiting for customer payments.

 

 

 

Who provides accounts receivable funding in Canada?

Providers include:

• Independent factoring companies

• Asset-based lenders

• Fintech and online platforms

• Chartered banks with commercial finance divisions
  Each offers different advance rates (75–95%), fees, and service levels.

 

 

What industries benefit most from accounts receivable funding?

Industries with delayed payment terms and reliable customers benefit most:

• Staffing and temp services

• Trucking and logistics

• Manufacturing and wholesale trade

• Business services and consulting

• Commercial construction and government contracting

 

 

 

How quickly can businesses access funds through accounts receivable funding?

Most receive funds from accounts receivable financing companies within 24–48 hours of submitting invoices.

• Approval: 1–3 business days

• First funding: 24–48 hours

• Ongoing funding of outstanding invoices : Same day to 24 hours
  Speed depends on clean invoices and customer credit strength.

 

 

 

Why does accounts receivable funding cost more than traditional bank loans?

 

Costs are higher for invoice financing because AR funding offers:

• Fast approval and cash access to 80-90% of invoice value

• No collateral beyond  unpaid invoices

• Flexible repayment with no fixed schedule

• Built-in credit and collection support
  The premium reflects the convenience and flexibility banks don’t provide.

 

 

 

 

 

What documents are required to qualify for accounts receivable funding?

Funders typically request:

• Accounts receivable aging report showing money owed

• Sample invoices and proof of delivery

• Articles of incorporation

• Customer payment history
  They focus on invoice quality and customer reliability, not tax returns or financial statements.

 

 

 

Key Benefits of Accounts Receivable Funding

 

 

How does accounts receivable funding help businesses grow?

 

Compared to traditional bank loans It ensures steady cash flow for large orders, new contracts, or seasonal surges. The funding line expands automatically with sales, creating a scalable source of working capital without fixed limits.

 

What competitive advantages does accounts receivable funding provide?

 

 

It lets businesses operate like cash-rich firms by maintaining liquidity while extending customer terms. Companies can:

• Secure supplier discounts

• Respond faster to new opportunities

• Maintain strong vendor relationships

• Invest in marketing and operations
  This flexibility converts customer payment delays into strategic growth advantages.

 

 

 

 

STATISTICS ON ACCOUNTS RECEIVABLE FUNDING

 

 

• Approximately 80% of B2B transactions in Canada involve credit terms, with average payment periods of 45-60 days creating significant cash flow challenges for businesses.

• The global accounts receivable financing market was valued at approximately $3.1 trillion USD in 2023 and is projected to grow at a compound annual growth rate of 8.2% through 2030.

• Canadian small and medium enterprises (SMEs) face an estimated $36 billion in outstanding receivables at any given time, representing a major opportunity for AR funding solutions.

• Research indicates that 82% of business failures result from poor cash flow management, with slow-paying customers being a primary contributing factor.

• Companies using accounts receivable funding report average fulfillment time improvements of 35% because they can purchase materials immediately rather than waiting for customer payments.

• The staffing industry represents approximately 35% of all factoring volume in North America due to the inherent mismatch between weekly payroll obligations and 30-60 day customer payment terms.

 

 

 

CITATIONS

 

 

1. Klapper, Leora. "The Role of Factoring for Financing Small and Medium Enterprises." World Bank Policy Research Working Paper 3593 (May 2005). https://www.worldbank.org

2. Soufani, Khaled. "The Decision to Finance Receivables: The Factoring Option." Managerial and Decision Economics 23, no. 1 (January/February 2002): 21-32. https://onlinelibrary.wiley.com

3. Summers, Barbara, and Nicholas Wilson. "Trade Credit and Customer Relationships." Managerial and Decision Economics 21, no. 8 (December 2000): 317-330. https://onlinelibrary.wiley.com

4. Industry Canada. "Financing SME Growth." Small Business Financing Profiles (2019). https://www.ic.gc.ca

5. Canadian Federation of Independent Business. "Cash Flow Challenges Facing Canadian Small Businesses." CFIB Research Report (2023). https://www.cfib-fcei.ca

6. 7 Park Avenue Financial."Confidential A/R Finance: Smart Working Capital Without Customer Notification"https://www.7parkavenuefinancial.com/factoring-confidential-ar-finance.html

7. Bakker, Marie HetR, Leora Klapper, and Gregory F. Udell. "Financing Small and Medium-Size Enterprises with Factoring: Global Growth in Factoring—and Its Potential in Eastern Europe." World Bank Working Paper (2004). https://www.worldbank.org

8. Medium/Stan Prokop."Receivables Loan Finance: Accounts Receivable Financing Agreement Must Have Information"https://medium.com/@stanprokop/receivables-loan-finance-accounts-receivable-financing-agreement-must-have-information-216d2a6b8a4f

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