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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
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"Cash flow is the lifeblood of business. Without it, even profitable companies can fail." — Richard Branson
ACCOUNTS RECEIVABLE LENDING
TABLE OF CONTENTS
What Is Accounts Receivable Financing?
How Does Selling Receivables Work in Canada?
Cash-Flowing an Invoice Through AR Factoring
Two Key Points About Accounts Receivable Lending
Is Accounts Receivable Financing Expensive?
Three Key Cost Drivers in AR Factoring
How Time Impacts the Cost of Accounts Receivable Factoring
Comparing AR Factoring to Bank Financing
Conclusion
Cash Flow Confidence
Accounts receivable lending is a common and legitimate question for Canadian business owners seeking better cash flow.
More specifically, many ask whether selling receivables through AR factoring is a smart growth strategy.
A balanced view is essential, so let’s examine how accounts receivable financing works via a factoring company and when it makes sense.
From Payment Delays to Immediate Capital
Problem: Your invoices represent real revenue, but customers take their time paying.
While you wait, bills pile up, opportunities slip away, and you're left explaining to suppliers why you can't pay on time.
Solution? Let the 7 Park Avenue Financial team show you how Accounts receivable lending converts those outstanding invoices into cash within days, putting you back in control of your business finances.
WHAT IS ACCOUNTS RECEIVABLE FINANCING?
Accounts receivable financing through factoring is not borrowing. It is the sale of invoices to a third-party financing firm.
This distinction separates AR financing from traditional bank lines of credit and affects both legal structure and cash-flow timing.
HOW DOES SELLING RECEIVABLES WORK IN CANADA?
Consider a $10,000 invoice issued on 30-day payment terms. Instead of waiting for your customer to pay, you sell that invoice to a factoring company.
If the customer pays on time, the transaction closes with no loan, no debt, and no repayment obligation.
CASH-FLOWING AN INVOICE THROUGH AR FACTORING
There is no loan involved in an accounts receivable financing agreement. The invoice is sold at a discount, typically $150–$200 on a $10,000 invoice.
Funds are advanced immediately after invoice issuance, transferring ownership and collection rights to the factor.
TWO KEY POINTS ABOUT ACCOUNTS RECEIVABLE LENDING
Most accounts receivable financing companies in Canada assume responsibility for collecting the invoice. This makes sense because they now own the receivable.
However, confidential receivable financing allows you to retain full control of customer relationships while still accessing immediate business cash flow.
IS ACCOUNTS RECEIVABLE FINANCING EXPENSIVE?
There are no guarantees in business, but debate over factoring costs in accounts receivable loans will never disappear. What matters is understanding how pricing actually works.
To evaluate cost accurately, you must focus on three core components of AR factoring.
THREE KEY COST DRIVERS IN AR FACTORING
The financing company prices facilities based on the following elements:
Holdback (Reserve): The portion of the invoice withheld until payment
Discount Fee: The factoring charge, often miscalled “the rate”
Advance Rate: The percentage of invoice value funded upfront
HOW TIME IMPACTS THE COST OF FACTORING
Factoring assumes a standard payment period, often 30 days. Many customers, however, pay later than agreed terms.
Reputable factoring firms calculate fees on a per-diem basis, meaning you only pay for the actual time the invoice remains unpaid.
WHY FACTORING IS OFTEN MISUNDERSTOOD
Factoring costs are expressed as fees, not interest rates. This distinction leads to frequent misinterpretation when compared to bank loans.
When analyzed correctly, factoring costs often align closely with the business value created through faster asset turnover.
COMPARING AR FACTORING TO BANK FINANCING
Factoring accelerates steady cash flow immediately. This allows businesses to increase sales, purchase inventory, and fund growth without delay.
Many firms cannot qualify for traditional bank financing, but financing accounts receivable remains available because it is asset-driven funding customer payments.
A PRACTICAL WORKING CAPITAL EXAMPLE
Suppose your company needs $250,000 in additional working capital. A bank term loan may require three to five years of repayment.
By contrast, factoring provides liquidity tied directly to receivables, often at a lower effective cost when measured against asset turnover.
CASE STUDY: ACCOUNTS RECEIVABLE LENDING FOR MANUFACTURING GROWTH
FROM THE 7 PARK AVENUE FINANCIAL CLIENT FILES
Company: ABC Manufacturing Ltd. (Ontario-based precision metal manufacturer)
Challenge
ABC Manufacturing secured a $500,000 automotive contract with net-60 payment terms. The company needed $200,000 upfront for materials and payroll, but its bank declined a credit line increase.
Solution
7 Park Avenue Financial structured an accounts receivable lending facility based on the customer’s AAA credit rating. ABC received 85% invoice advances within 24 hours, starting five days after approval.
Results
$425,000 in immediate cash advances over six months
Contract completed with zero cash-flow disruption
40% increase in repeat automotive orders the following year
2.5% supplier discounts achieved through early payment
2% financing cost supported $1.2 million in new annual revenue
Outcome
Accounts receivable lending enabled ABC to scale production, retain a Fortune 500 customer, and strengthen a healthy cash flow. The company continues using receivables financing while building credit capacity for future equipment expansion.
KEY TAKEAWAYS
Accounts receivable lending involves selling invoices, not borrowing
AR factoring provides immediate cash flow tied to asset turnover
Costs are based on time outstanding, not interest rates
Confidential factoring preserves customer relationships
Factoring often outperforms bank loans for fast-growing firms
CONCLUSION
Selling accounts receivable can be a highly effective cash-flow strategy for Canadian businesses. Keeping an open mind to AR financing often reveals funding solutions banks cannot provide.
Call 7 Park Avenue Financial, an experienced Canadian business financing advisor to determine whether accounts receivable lending fits your growth objectives.
FAQ/FREQUENTLY ASKED QUESTIONS
What is accounts receivable lending and how does it differ from a bank loan?
Accounts receivable lending converts unpaid invoices into immediate cash. Instead of borrowing and adding debt, you sell or advance against receivables based on customer creditworthiness, not your balance sheet.
How quickly can I access funds through accounts receivable lending?
Initial funding usually occurs within 3–5 business days of approval. Ongoing advances are typically available within 24–48 hours after invoicing.
What types of businesses qualify for accounts receivable lending?
B2B companies that invoice other businesses or government entities qualify. Common users include manufacturers, distributors, staffing firms, and service providers with creditworthy customers.
What are the costs of accounts receivable lending?
Costs typically range from 1–5% of invoice value, depending on payment timing, customer credit, and volume. Fees are charged for early access to cash, not interest on borrowed money.
Can I choose which invoices to finance?
Most programs require financing all invoices from approved customers. Selective or spot invoice financing is available but usually costs more.
How does accounts receivable lending affect customer relationships?
In most cases, customers are notified to pay the lender directly. Professional lenders handle collections discreetly, and most B2B customers view receivables financing as standard practice.
What happens if my customer doesn’t pay?
In recourse programs, you replace or repurchase disputed invoices. In non-recourse programs, the lender assumes the risk of customer insolvency, but not disputes or quality issues.
How much of my invoice value can I receive upfront?
Advance rates usually range from 80–90% of invoice value. The remaining balance is paid once the customer settles the invoice, minus fees.
Does accounts receivable lending require a long-term contract?
Some lenders require one- to three-year agreements, while others offer month-to-month terms. Longer contracts generally provide lower fees.
Will using accounts receivable lending hurt future bank financing?
Not necessarily. When used for growth or cash-flow optimization, it can strengthen future bank applications by improving financial performance.
BENEFITS-FOCUSED QUESTIONS
What immediate benefits does accounts receivable lending provide?
It delivers predictable cash flow within days of invoicing. This supports payroll, inventory purchases, and time-sensitive opportunities.
How does accounts receivable lending support faster growth?
Funding increases automatically as sales increase. This allows businesses to accept larger orders without waiting for customer payments.
Can accounts receivable lending improve supplier negotiations?
Yes. Faster cash flow enables early-payment discounts and strengthens supplier relationships through reliable, on-time payments.
What administrative work does accounts receivable lending reduce?
Lenders often manage credit checks, payment monitoring, and collections. This reduces internal administrative burden and improves receivables visibility.
Why is accounts receivable lending more flexible than bank financing?
There are no fixed loan payments or restrictive covenants. Financing usage rises and falls with sales volume.
ADDITIONAL QUESTIONS
What’s the difference between accounts receivable lending and factoring?
Factoring involves selling invoices, while receivable lending may use invoices as collateral. In practice, both accelerate cash flow using unpaid invoices.
How do seasonal businesses benefit from accounts receivable lending?
They access cash during peak invoicing periods and pay less during slower months. Costs align directly with revenue cycles.
Can accounts receivable lending be combined with other financing?
Yes, it often works alongside equipment or real estate financing. Conflicts only arise if multiple lenders claim the same receivables.
What industries use accounts receivable lending most?
Manufacturing, staffing, distribution, transportation, professional services, and government contractors use it most frequently.
What documentation is required to set up accounts receivable lending?
Typical requirements include invoice aging reports, customer lists, sample invoices, and basic corporate documents. Requirements are lighter than traditional bank loans.
STATISTICS ON ACCOUNTS RECEIVABLE LENDING
According to the International Factoring Association, invoice factoring volume in North America exceeded $150 billion annually
The Commercial Finance Association reports that 82% of businesses using receivables financing cite improved cash flow as the primary benefit
Statistics Canada data shows Canadian businesses wait an average of 52 days for invoice payment, creating significant working capital gaps
Industry research indicates that 43% of small businesses experience cash flow problems, with late customer payments being the leading cause
The Receivables Finance Association reports that businesses using invoice financing grow 30-40% faster than those relying solely on retained earnings
Canadian Federation of Independent Business surveys show 29% of small businesses struggle to access traditional bank financing
Research from Dun & Bradstreet indicates that businesses offering net-30 payment terms receive payment in an average of 42 days
The Canadian Bankers Association reports that only 18% of small business loan applications are approved without modifications or alternative solutions being proposed
CITATIONS /MORE INFORMATION
Commercial Finance Association. "2024 Asset-Based Lending and Factoring Survey." Commercial Finance Association, accessed January 2025, https://www.cfa.com.
Linkedin/Stan Prokop/7 Park Avenue Financial . "Expert Receivables Financing Solution".https://www.linkedin.com/pulse/expert-receivables-financing-solutions-stan-prokop-nlhie/
Statistics Canada. "Survey on Financing and Growth of Small and Medium Enterprises, 2024." Statistics Canada, November 2024, https://www.statcan.gc.ca.
7 Park Avenue Financial ."Accounts Receivable Financing: Unlocking Cash Flow Growth in Canada". https://www.7parkavenuefinancial.com/factoring_in_canada_invoice_factoring.html
Canadian Federation of Independent Business. "Business Barometer: Small Business Financing Challenges." CFIB, December 2024, https://www.cfib-fcei.ca.
International Factoring Association. "Invoice Factoring Volume Report 2024." International Factoring Association, 2024, https://www.factoring.org.
Dun & Bradstreet. "Trade Credit Survey: Canadian Payment Practices." Dun & Bradstreet Canada, 2024, https://www.dnb.ca.
Canadian Bankers Association. "SME Lending Data Report 2024." Canadian Bankers Association, October 2024, https://www.cba.ca.
Factors Chain International. "Annual Review of Factoring and Commercial Finance." FCI, 2024, https://www.fci.nl.
Bank of Canada. "Business Credit Availability and Financing Conditions." Bank of Canada, accessed January 2025, https://www.bankofcanada.ca.
Medium/Stan Prokop.7 Park Avenue Financial ." Receivables Financing Exposed: Why Canadian Choose Speed Over Bank Approval" . https://medium.com/@stanprokop/receivables-financing-exposed-why-canadian-choose-speed-over-bank-approval-ff36c3e904af
