The AR Funding Structure That Matches Your Customer Base

 Bridge the Cash Flow Gap Using Accounts Receivable Funding Today

 

 

YOUR COMPANY IS LOOKING FOR A/R FINANCING! IN CANADA

ACCOUNTS RECEIVABLE FUNDING IN CANADA

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Financing & Cash flow are the  biggest issues facing business today

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

 

 

What Is Accounts Receivable Funding?

 

Accounts receivable funding is a lending solution that converts eligible unpaid customer invoices into immediate working capital to improve cash flow.

 

It's short-term borrowing as your business receives an advance on the amount due from a lender or factor and repays the facility when customers pay their invoices. For businesses looking to fund day-to-day operations and grow, it's the most popular version of alternative lending.

 

The key issue is timing when your business borrows money.  Your company may have earned the revenue, but the cash needed for payroll, inventory and suppliers can remain tied up for 30, 60 or 90 days. A powerful tool to fix that challenge is receivables finance for your government or regular trade receivables

 

 

 We can safely say that Canadian business owners/managers view this method of financing as somewhat of their own review of '  THE GOOD, THE BAD, AND THE UGLY '.   Let's dig in a bit more!

 

What Is the Real Cost of Waiting for Customer Payment?

 

The cost of factoring should not be compared only with a 1.5%–2% financing fee. Waiting 30–90 days for payment can also mean losing supplier early-payment discounts, turning down profitable purchase orders, delaying growth, and spending more time managing collections.

 

For example, taking a 2/10, net 30 supplier discount saves 2% by paying 20 days early—an annualized return of roughly 36%, depending on the calculation method. If receivables financing unlocks that discount or protects profitable sales, its net economic cost may be much lower than its quoted fee.

 

 

Why Do 60- to 90-Day Payment Terms Restrict Growth?

 

Long payment terms force your business to finance the customer’s purchase after the sale has been completed.

 

Expenses such as wages, materials, freight and taxes usually become due before the related customer payment arrives.

 

This mismatch can leave you feeling frustrated because strong sales do not necessarily produce available cash. Accounts receivable funding shortens that waiting period without requiring your customers to pay sooner.

 

 

WHEN DOES ACCOUNTS RECEIVABLE FINANCING MAKE SENSE?

 

No small business owner or manager in Canada, especially in the start-up to SME sector business denies that financing a business is a challenge.

 

So when exactly does utilizing A/R finance for unpaid invoices make sense, and when, if ever, does it get ' bad' and 'ugly '?

 

Which Accounts Receivable Funding Structure Fits Your Business?

 

Structure	How it works	Best suited to
Invoice factoring	Individual invoices or the receivables ledger are assigned to a factor	Businesses needing funding and collection support
Confidential invoice discounting	Receivables support a revolving facility without routine customer notification	Established businesses with reliable internal collections
Asset-based revolving line	Receivables form part of a borrowing base that may also include inventory	Larger borrowers needing scalable working capital
Selective invoice funding	The business chooses particular invoices to fund	Companies with occasional cash-flow gaps
Non-recourse factoring	The factor assumes defined customer credit risks	Businesses concerned about approved customer insolvency
Export receivables funding	Foreign receivables support advances, sometimes with credit insurance	Canadian exporters selling on open-account terms

 

 

3 SITUATIONS THAT SIGNIFY YOU NEED A CASH FLOW FINANCING SOLUTION

 

When to utilize invoice discounting is probably the easier one for us to address first, with the aim of allowing you to quickly see whether you're a solid candidate for this method of financing your firm.

 

Typically, you find yourself in one of probably 3 different situations.

 

Three Signs Invoice Factoring May Be a Good Fit

 

 

1. Bank financing is unavailable or insufficient. Banks typically require consistent profits, adequate cash-flow coverage, and strong owner credit. Factoring focuses primarily on the quality of your receivables and customers.
2. Rapid growth is creating cash-flow pressure. When large orders or opportunities arise, selling receivables can provide immediate working capital without waiting for customers to pay.
3. Your business is expanding or diversifying. Factoring can support larger contracts, new product launches, and sales into U.S. or international markets.

 

 

 

All of the above scenarios lend themselves to a Factoring/invoice discounting solution.

 

THE COST OF SHORT TERM  INVOICE FACTORING  / HOW DOES FACTORING OR  INVOICE DISCOUNTING WORK?

 

How does accounts receivable funding work

 

Accounts receivable funding advances a percentage of your invoice value and releases the remainder once customers pay.

• Submit invoices

• Receive an advance (typically 70–90%)

• Balance released after customer payment

 

The “bad and ugly” of factoring can include customer notification, extra paperwork, loss of collection control, and unclear pricing.

 

Confidential, non-notification receivables financing avoids customer involvement and lets your company continue billing and collecting. Compare all fees carefully; invoice financing is typically priced as a fee on each invoice, often around 1.5%–2%, rather than as an interest rate.

 

The Customer Relationship Myth:

 

Using accounts receivable funding does not automatically signal financial trouble.

 

In today’s B2B market, professionally managed notification factoring is widely accepted as a practical cash flow tool. Businesses concerned about customer involvement can also consider confidential, non-notification receivables financing.

 

 

What Does Accounts Receivable Funding Cost?

 

Pricing may include a discount fee, interest charge, administration fee, due-diligence cost, minimum monthly charge or unused facility fee. The correct comparison is the total dollar cost over your expected collection period.

Review these items before accepting a facility:

• Advance rate
• Interest or discount rate
• Minimum monthly volume
• Origination and renewal fees
• Invoice-processing charges
• Credit-check fees
• Reserve-release timing
• Audit or field-examination costs
• Early termination charges
• Personal guarantee requirements
• Cost of overdue invoices

 

A factoring fee should not automatically be treated as an annual percentage rate. Factoring prices a transaction and collection period, while a conventional loan charges interest on outstanding principal over time.

 

AR FUNDING  FIXES YOUR BALANCE SHEET - HERE'S HOW 

 

In factoring, a true sale of receivables may convert invoices into cash without recording additional debt, helping preserve the company’s debt-to-equity ratio.

 

By comparison, a short-term loan increases liabilities and leverage, which can weaken financial covenants or institutional credit assessments. Accounting treatment depends on whether the receivables are legally transferred and substantially all risks and rewards are removed.

 

CASE STUDY# 1

FROM THE 7 PARK AVENUE FINANCIAL CLIENT FILES

 

Company: ABC Company — Ontario-based commercial printing business

Challenge: ABC Company landed a major contract with a national retail chain on net-60 terms. Their existing bank line was too small to bridge the gap, and the bank declined an increase. Two of their largest legacy customers were smaller, family-run businesses ABC didn't want contacted by a third party.

How We Got There: We structured a blended facility — notification funding on the new national retail receivable, where a factoring notice was routine and unremarkable, and confidential funding on the legacy accounts, preserving those relationships. ABC's aging reports and collection history were clean enough to qualify for the confidential portion without added conditions.

Results: ABC accessed working capital against both receivable pools within days, kept its long-standing customer relationships untouched, and secured pricing on the notification portion below what a fully confidential facility would have cost.

 

Case study: Benefits of accounts receivable funding

 

Company: ABC Company, a mid‑sized industrial parts distributor

 

Challenge: ABC faced 45–60-day payment terms from large customers, causing cash flow strain and limiting inventory purchases.

 

Solution – Invoice Finance - How We Got There:

• Implemented accounts receivable financing to advance cash on approved invoices

• Used predictable liquidity to negotiate better supplier terms

• Accounts receivable financing programs delivered reduced reliance on high‑interest short‑term debt

 

 

Results:

• 30% improvement in cash flow stability

• Ability to accept larger customer orders

• Inventory turnover increased by 22%

• Owner reported reduced stress and more time for strategic planning

 

 

CONCLUSION - FUNDING UNPAID INVOICES

 

So, if your working capital financing is 'broken ', consider  ' unbreaking' it with a solid invoice finance solution from a factoring company.

 

Factoring or invoice discounting solutions can cash flow your sales revenues immediately.

Call 7 Park Avenue Financial,  a trusted, credible and experienced Canadian business financing advisor who can assist you with surmounting the business finance challenge and experts in any type of funding your business.

 

7 PARK AVENUE FINANCIAL ORIGINATES ACCOUNTS RECEIVABLE FUNDING

 

 

FAQ/FREQUENTLY ASKED QUESTIONS

 

How much can you receive from accounts receivable funding?

The available amount depends on eligible receivables and the negotiated advance rate.

• Typical non-bank advances are approximately 80% to 90%.
• Older and disputed invoices may be excluded.
• Concentrated customer balances may be capped.
• Existing advances and reserves reduce immediate availability.

How quickly can accounts receivable funding be arranged?

Initial setup commonly takes several business days to several weeks, depending on due diligence and security registrations. Approved invoices can often be funded within 24 to 48 hours after the facility is operational.

Who qualifies for accounts receivable funding?

Businesses selling completed goods or services to creditworthy commercial customers are generally the strongest candidates. Approval focuses on customer quality, invoice validity and collection performance.

Can you qualify when your business has weak credit?

Accounts receivable funding may remain available when the owner’s credit or company balance sheet does not meet conventional bank standards. Serious tax arrears, legal claims, fraud concerns or unreliable invoicing can still prevent approval.

What is the difference between factoring and accounts receivable funding?

Factoring normally involves the purchase or assignment of receivables and may include collection services. Accounts receivable funding is a broader term covering factoring, invoice discounting and revolving loans secured by receivables.

Will customers know that invoices are being funded?

Customer notification depends on the facility.

• Traditional factoring normally includes notice of assignment.
• Confidential invoice discounting may avoid routine notification.
• A blocked or controlled collection account may still be required.
• Verification calls can occur even under some confidential programs.How do CRA arrears affect receivables funding?

• CRA payroll source-deduction claims can rank ahead of a secured lender’s interest in some business assets. Lenders therefore review CRA status carefully and may require arrears to be paid, controlled or covered by additional reserves.

 

 

How do CRA arrears affect receivables funding?

CRA payroll source-deduction claims can rank ahead of a secured lender’s interest in some business assets. Lenders therefore review CRA status carefully and may require arrears to be paid, controlled or covered by additional reserves.

 

 

What happens if a customer does not pay?

Responsibility depends on whether the facility is recourse or non-recourse.

• Recourse facilities normally require the business to replace or repay an unpaid invoice.
• Non-recourse protection applies only to specifically defined credit events.
• Customer disputes and performance problems usually remain with the business.
• Overdue invoices may become ineligible before a loss occurs.

Can government invoices be funded?

Government receivables may be financeable, but assignment rules and contract terms require review. Some contracts restrict assignment or require consent before payment can be redirected.

Can export receivables be funded?

Export receivables can be funded when the lender accepts the country, currency, customer and documentation risks. Credit insurance may improve lender recognition of eligible foreign invoices.

 

STATISTICS

 

 

• Canadian businesses wait an average of 55 days to get paid on B2B invoices (Source: Canadian Federation of Independent Business).

• Over 40% of Canadian SMEs report cash flow as their top operational challenge (BDC).

• Companies using receivable financing grow 20–30% faster due to improved liquidity (Industry estimates).

 

Citations 

 

 

Export Development Canada. “How to Calculate the Cost versus Benefit of Insuring Sales.” https://www.edc.ca/en/premium/guide/to-insure-or-not.html. Main website: https://www.edc.ca/.

Innovation, Science and Economic Development Canada. “Determinants of Trade Credit Use by Small and Medium-Sized Enterprises in Canada.” 2010. https://ised-isde.canada.ca/site/sme-research-statistics/en/research-reports/determinants-trade-credit-use-small-and-medium-sized-enterprises-canada/determinants-trade-credit-use-small-and-medium-sized-enterprises-canada. Main website: https://ised-isde.canada.ca/

7 Park Avenue Financial ."Receivable Finance: How Canadian Businesses Are Solving Cash Flow Challenges".https://www.7parkavenuefinancial.com/financing-receivables-cost-of-factoring-funding.html

Downes, John, and Jordan Elliot Goodman. Dictionary of Finance and Investment Terms. 9th ed. Hauppauge, NY: Barron's Educational Series, 2014. https://www.barrons.com

Medium/Prokop/7 Park Avenue Financial."What is Accounts Receivable Funding and How Can It Help Your Business?".https://medium.com/@stanprokop/what-is-accounts-receivable-funding-and-how-can-it-help-your-business-9a9488878857

Klapper, Leora. "The Role of Factoring in Financing Small and Medium Enterprises." Journal of Banking & Finance 30, no. 11 (2006): 3111–3130. https://www.sciencedirect.com

Secured Finance Network. Asset-Based Lending and Factoring Survey Analysis. Chicago: Secured Finance Network, 2024. https://www.sfnet.com