Accounts Receivable Financing: Fueling Growth Without Debt

 

 

ACCOUNTS RECEIVABLE   FINANCE - CANADA

 

Accounts Receivable Factoring

 

 

Introduction

 

Cash flow gaps from unpaid invoices are one of the top reasons otherwise profitable Canadian businesses fail.

Accounts receivable factoring solves this by turning your outstanding invoices into same‑day cash without taking on bank debt.

 

At 7 Park Avenue Financial, we specialize in receivable finance for Canadian SMEs and have helped hundreds of owners unlock working capital

 

What is accounts receivable factoring?

 

Accounts receivable factoring is the sale of eligible unpaid customer invoices to a factoring provider in exchange for an upfront payment.

 

The provider releases the remaining balance after collection, less agreed fees and adjustments.

 

3 Uncommon Takes on Accounts Receivable Factoring

 

• It’s a sales‑linked credit line, not a loan. Unlike a term loan or A/R line that caps you at a fixed limit and adds debt to your balance sheet, factoring scales with your invoices. More sales = more funding, automatically.

• Your customers’ credit matters more than yours. Factors underwrite who owes you money, not just your financials. That’s why newer or fast‑growing firms with strong customers can qualify when banks say no.

• You can keep it confidential. Many Canadian programs are non‑notification (confidential), so your customers never know a factor is involved—useful if you’re worried about client relationships.

 

 

Recent studies in the United States (and we believe the Canadian business landscape is very similar) suggest that one of the most viable ways for businesses to grow and continue growing in the current economic and somewhat difficult credit environment is to consider a factoring working capital facility. 

 

This type of financing facility is also known as accounts receivable financing or ' factoring facilities '.

 

 

What is Accounts Receivable Financing: A Factoring Facility Guide

 

 

Factoring, also known as accounts receivable AR financing, goes by many terminologies, including invoice discounting, invoice factoring, debtor finance, etc.

 

It is the purchase by an accounts receivable factoring company for a ‘factoring fee’ (not an interest rate) of your accounts receivable in whole or in part.

 

Businesses can receive cash from a finance company as they generate invoices and sales. Companies can choose from recourse or non-recourse factoring, depending on how they want to assume normal bad debt risk.

 

This financing can serve as a line of credit and is a solid way to finance a balance sheet. Factoring is a subset of ‘asset-based lending’. Using a third party, such as 7 Park Avenue Financial, to fund receivables allows companies to improve their cash position.

 

 

CAN YOUR COMPANY ACCESS ALL THE BANK FINANCING YOU NEED?

 

 

If your company is doing reasonably well, and the general economic, business and credit environment is pretty positive.

 

Naturally, more traditional financing is considered – as a Canadian business owner, you know the drill - prepare an executive summary or business plan (7 Park Avenue Financial prepares business plans that meet and exceed lender requirements), produce several years of financial statements, and meet with your Canadian chartered bank to discuss receivable or term financing.

 

In today’s economic environment, many businesses can't pursue traditional financing and must consider alternative options.

 

In such cases, businesses can explore accounts receivable financing companies as a way to bridge cash flow gaps and access quick funding.

 

 

SUMMARY -  BANK VS FACTORING

 

Bank financing usually costs less, but factoring may offer greater flexibility when a business cannot meet bank lending requirements. Compare both the price and the conditions attached to the funding.

 

Issue	Factoring financing	Bank line of credit
How you pay	Fees commonly depend on invoice value and how long customers take to pay.	Interest generally applies to the amount borrowed, plus applicable banking fees.
Main assessment	Customer creditworthiness and invoice collectability are central.	Business cash flow, financial strength and collateral are central.
Conditions	Invoice eligibility, customer concentration limits, reserves and contractual obligations.	May require financial ratios, reporting and restrictions on additional borrowing or distributions.
Funding availability	May increase as eligible receivables grow, within approved limits.	Subject to the approved limit, borrowing conditions and lender review.

 

Factoring converts invoices into cash by selling them at a discount. Bank covenants are conditions borrowers must satisfy throughout the financing agreement, including specified financial ratios.

 

 

THE KEY BENEFIT OF ACCOUNTS RECEIVABLE FINANCING? CASH!

 

 

One appeal of factoring/accounts receivable financing is that it generates positive cash flow right out of the gate. Various accounts receivable financing offers allow companies to leverage their outstanding invoices to secure immediate cash flow.

 

Another key benefit is that business owners and financial managers can focus on running their businesses instead of spending all their time on cash flow problems and working capital challenges.

We would point out that the time saved on collections, of course, refers to the finance or factor firm collecting your accounts receivable.

 

Many business owners do not like this direct contact with the customer, which is one of the reasons the Canadian business environment has, relatively speaking, been ‘slow to catch on to factoring.

 

THE HISTORY OF FACTORING - HOW DOES ACCOUNTS RECEIVABLE FINANCING WORK?

This necessitates a brief discussion around the notification concept and how factoring has traditionally been done in the U.S. and elsewhere. 

 

  Factoring started hundreds, some say thousands of years ago in Europe and Asia.  Traditionally, it involved the total ‘sale ‘of your receivables; your firm got the cash, but you didn’t own or collect the receivables.

 

In recent years, due to the creativity of the North American financing markets, numerous other product offerings related to factoring have been made, one of which is ‘non-notification '.

 

 

CHOOSING THE RIGHT FACTORING COMPANY

WHAT IS THE BEST FACTORING SOLUTION FOR OUTSTANDING INVOICES?

 

 

At 7 Park Avenue Financial, we believe non-notification factoring is the absolute best solution for Canadian business owners considering alternative financing.

 

This type of financing lets businesses access funds before the customer pays, providing immediate cash flow and supporting operations.

 

Under non-notification-type facilities, you bill and collect your receivables while receiving cash for them as soon as you generate your invoices. This provides a double whammy!

1.    You bill and collect your receivables and get cash ASAP

2.    You maintain the relationship with your customer, which is key to most Canadian business owners

 

 

At 7 Park Avenue Financial, we feel that the financing above, which we call  CONFIDENTIAL RECEIVABLE FINANCING, is the best form of a/r funding for a business. It’s a factoring company solution that works... finally!

 

BENEFITS OF CONFIDENTIAL A/R FINANCING  

 

 As we have noted in the past, factoring is more expensive than traditional financing.

 

Still, that paid premium, called the ‘factoring discount’, gives your company the cash you need to grow your business.

 

Savvy Canadian business owners can use that cash to improve supplier relationships, take prompt payment discounts, and purchase more inventory for sale to their customers. In some instances, yes, we repeat all. Yes, good gross margins and solid operating efficiencies can offset all of the costs of a factoring finance facility.

 

 

The CRA Arrears Issue

 

CRA arrears can delay factoring approval and reduce available cash. Unpaid payroll deductions and GST/HST may create deemed trust claims that take priority over other creditors, even without a registered lien. Corporate income-tax arrears require separate assessment.

 

Disclose tax debts early. A factor may require repayment from the initial advance, extra reserves or an acceptable payment arrangement. A payment arrangement does not automatically remove CRA’s priority.

Case Study

From The 7 Park Avenue Financial Client Files

 

• Company: ABC Company (Manufacturing industry)

• Challenge: Facing a 90-day payment lag on major retail purchase orders, ABC Company lacked the liquid cash required to buy raw materials and meet bi-weekly payroll for its growing staff.

• HOW WE GOT THERE: At 7 Park Avenue Financial, we analyzed their debtor ledger, identified creditworthy commercial accounts, and set up an ACCOUNTS RECEIVABLE FACTORING facility that advanced 85% of invoice values within 24 hours of billing.

• Results: The business secured immediate operating capital, fulfilled large purchase orders on time, increased monthly revenue by 35%, and eliminated payroll stress without taking on rigid bank debt.

 

 

 

 

KEY TAKEAWAYS

 

 

• Factoring: Selling invoices at a discount for immediate cash

• Advance rates: Percentage of invoice value provided upfront

• Recourse vs. non-recourse: Responsibility for unpaid invoices

• Fees: Factoring costs, including discount rates and service charges

• Eligibility criteria: Requirements for qualifying invoices and customers

• Outstanding invoices: Leveraging unpaid invoices to obtain immediate cash flow

 

CONCLUSION

 

 

Is it any wonder why receivable factoring, accounts receivable financing, and non-traditional working capital facilities are becoming more popular in Canada?

 

We don’t think so! Receivables finance offers various types of accounts receivable financing, highlighting its advantages, flexibility, and applicability to different business stages.

 

Call 7  Park  Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you with your cash flow needs.

 

7 Park Avenue Financial originates Accounts Receivable Factoring

 

 

 

FAQ/FREQUENTLY ASKED QUESTIONS

 

How does Accounts Receivable A/R Financing improve cash flow?

Accounts Receivable Financing converts unpaid invoices into immediate cash, allowing businesses to access funds tied up in outstanding receivables and improve overall liquidity.

 

 

 

What advantages does Accounts Receivable Financing offer over traditional loans?

Unlike traditional loans, Accounts Receivable Financing doesn’t create debt, offers faster access to funds, and scales with your business growth without requiring additional collateral.

 

 

Can AR Financing help my business expand?

Yes, by providing quick access to working capital, Accounts Receivable Financing enables businesses to take on new projects, invest in growth opportunities, and expand operations without waiting for customer payments.

 

 

How does A/R Invoice Financing affect my relationship with customers?

An accounts receivable loan system typically maintains your existing customer relationships as you manage customer communications while the financing company handles collections professionally and discreetly.

 

 

Are  Receivable Loans via a factoring facility suitable for seasonal businesses?

Absolutely. Accounts Receivable Financing is particularly beneficial for seasonal businesses, providing flexible funding that adapts to fluctuating sales cycles and helps maintain steady cash flow year-round.

 

 

What types of businesses can benefit from Accounts Receivable Financing?

Accounts Receivable Financing can benefit various businesses, including manufacturing, wholesale, distribution, service providers, and any company that invoices other businesses with payment terms.

 

 

How quickly can I receive funds through Accounts Receivable Financing?

Typically, businesses can receive funds from a company's accounts receivable within 24-48 hours after submitting eligible invoices, making it one of the fastest financing options.

 

 

Does my business need to be a specific size to qualify for Accounts Receivable Financing?

While requirements vary among providers, Accounts Receivable Financing is available to businesses of all sizes, from startups to large corporations, as long as they have qualifying business-to-business or government invoices on the company's balance sheet.

 

 

Will using Accounts Receivable Financing affect my business’s credit score?

Generally, Accounts Receivable Financing does not impact your business credit score, as it’s not a loan and doesn’t appear on your credit report. However, some factors may indirectly affect your creditworthiness.

 

 

How does the cost of Accounts Receivable Financing compare to other financing options?

While Accounts Receivable Financing may have higher apparent costs than traditional loans, it often proves more cost-effective when you consider the benefits of improved cash flow, reduced administrative burdens, and the potential for increased sales.

 

 

What factors should I consider when choosing an Accounts Receivable Financing provider?

Consider the provider’s industry experience, fee structure, advance rates, funding speed, technology platform, and customer service quality. Also, evaluate their flexibility regarding any additional services they offer.

 

 

How can Accounts Receivable Financing help my business during economic downturns?

During economic downturns, Accounts Receivable Financing can provide a reliable source of working capital, helping businesses maintain operations, meet payroll, and seize opportunities even when traditional lending sources tighten.

 

 

What steps can I take to maximize the benefits of Accounts Receivable Financing for my business?

To maximize benefits, maintain thorough invoice documentation, communicate clearly with your financing provider, strategically select which invoices to finance, and use the freed-up cash to invest in growth opportunities or negotiate better terms with suppliers.

 

KEY TERMS AND DEFINITIONS TO BETTER UNDERSTAND ACCOUNTS RECEIVABLE FACTORING

 

Accounts receivable factoring: Selling unpaid business invoices to a factoring company for an upfront cash advance. The remaining balance is released, less fees and adjustments, after your customer pays.

Termination notice period: The advance written notice required to end a factoring agreement, often 30 to 90 days. Missing the deadline may trigger renewal or additional fees.

Auto-renewal clause: A contract provision that automatically renews the factoring agreement unless you provide written notice within the required timeframe.

Early termination fee: A charge for ending the agreement before its scheduled expiry. The calculation depends on the contract and may reflect the facility limit or remaining minimum fees.

Payout letter: A written statement showing the amount required to pay off the factoring facility on a specified date, including outstanding advances, fees and applicable reserve credits.

Takeout lender: A replacement lender, such as a bank or asset-based lender, that provides funding to pay off the existing factoring facility.

PPSA discharge: The removal of the factor’s registered security interest from the applicable provincial personal property security registry once its secured obligations are satisfied.

Reserve true-up: The final adjustment of funds held in reserve, with any remaining balance released after collections, disputes, fees and other obligations are resolved.

Run-off exit: Ending a factoring relationship by stopping new invoice submissions and allowing existing factored invoices to be collected, subject to the agreement’s termination requirements.

 

 

 

STATISTICS

 

 

• Global volume: FCI's latest World Factoring Statistics put total global factoring turnover at €4,039 billion in 2025, up 3.7% from €3,895 billion in 2024. fci
• Long-run growth: FCI reported that factoring has grown at a compound annual rate of 7.8% over the past two decades. abfjournal
• Canadian late payments: In the March 2026 quarter, Canadian small businesses were paid an average of 11.6 days late, up from 10.5 days in the December quarter. xero
• Time to be paid: Canadian small businesses waited an average of 29.8 days for invoice payment in the March 2026 quarter, up from 27.2 days; Ontario was longer at 30.7 days. xero
• Overdue B2B invoices: Atradius found overdue invoices at 44% of Canadian B2B credit sales, with bad debts affecting about 6% of long-outstanding invoices. atradius

 

 

CITATIONS - FACTORING COMPANIES

 

Canadian Bankers Association. "Commercial Lending Trends and Business Finance." https://cba.ca

Business Development Bank of Canada (BDC). "Understanding Working Capital and Cash Flow Solutions." https://www.bdc.ca

Medium."Financing a Business : How Canadian Companies Access Capital".https://medium.com/@stanprokop/financing-a-business-how-canadian-companies-access-capital-46e7d84284ba

Business Development Bank of Canada. “What Is Factoring? Pros and Cons.” Accessed October 6, 2026. Publication. Main website: https://www.bdc.ca.

7 Park Avenue Financial."Business Factoring Loans".https://www.7parkavenuefinancial.com/business-factoring-factor-cost-ar-finance.html

Canada Revenue Agency. “Information on Deemed Trust.” Accessed October 6, 2026. Publication. Main website: https://www.canada.ca.

FCI. “FCI Releases 2025 World Industry Statistics as Global Factoring Market Surpasses €4 Trillion.” May 5, 2026. Publication. Main website: https://fci.nl.

 

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Financing receivables can be a key ' igniter ' in your firm's search for business credit that works for your cash flow needs. Accounts receivable factoring and the cost of factoring in your search for business funding requires some special analysis and expertise.This method of financing can often ' unfreeze ' your working capital. Let's dig in and show you how to fix the business credit freeze.


How Does Factoring Invoices Function On A Day To Day Basis

The entire FACTORING process is the cash flowing of your receivables after your firm has provided either its goods or services to your client. There is a defined process that allows your company to receive funding on completion of your sale and the invoice to the client.

Factoring clients are best suited to these financial solutions when their business is growing and traditional capital is not available. In fact, while traditional financial institutions are focused on credit limits, annual reviews, etc factoring solutions are very flexible and limits can very easily be raised if your sales are growing. In fact business owners control their own limits based on their decisions as to how much of their receivables they wish to finance and when to submit those invoices for financing.

After your firm has invoiced your client you provide a copy of that invoice to the receivable finance firm you are utilizing . Many firms offer very different types of versions of what we could call ' traditional factoring' but essentially you will receive your funds withing a day or so of invoice submission .  The amount you receive on the face value of the invoice is typically  80-90% of the invoice amount . You receive the balance of the invoice when your client pays, at which time a fee of approx  1-2% is deducted as the ' factoring fee ' .

This latter point of a factoring fee must be stressed and understood when looking at this type of accounts receivable financing . Why ? Many business owners and financial managers view the factoring fee as an ' interest rate ' when in fact it is simply a cost of the service for providing the financing, A better way to think of it is that is a reduction in your gross margin of that 1-2% range that we expressed previously . This whole area is one of the largest misnomers around FACTORING and its true cost. Your true financing cost in factoring will revolve around the agreed upon fee charged, and your ability to negotiate the amount that will be advanced on each invoice. Those are two, but not all, of the  key drivers in calculating your cost of financing .

Why Does Factoring Work ?

Factoring works simply because it turns your sales into working capital, allowing you to accelerate cash flow via the financing of a/r.  Business owners will not be surprised to know that it takes typically anywhere from 30-90 days these days to collect your accounts, your stated payment terms notwithstanding!

It should be noted that the advance rates on each invoice tend to vary by industry - the trucking/freight and staffing industries are two examples of high users of this method of financing sales so the advance rates are quite high - that's a good thing ! It should be noted that some costs considered as ' miscellaneous ' by some such as account set up, bank lockbox fees, and credit checks can add up and should be considered in your total cost analysis.


Accessing the cash allows you to address the day operating cash needs of your business. If your company is in a position of either having to , or offering, extended payment terms for your suppliers and your have sufficient gross margins then FACTORING is a solid potential solution for your business.

In certain cases a business might be able to take advantage of taking on a new or larger client that previously was not able to be considered based on size and the working capital investment your firm would have to make in carrying a/r or funding additional inventory.

A firm having a large number of clients that generate a large number of invoices could utilize  FACTORING as a method to reduce the collection costs and investment in staff to facilitate financing.

A  key benefit of factoring is that it does not bring debt onto your balance sheet - it is not a loan ! Rather it is the monetization of what is typically your largest current asset - A/R. As we mentioned many firms are stalled in sales growth due to their inability to fund the working capital component of sales . The FACTOR solution allows you to take on those clients with ease .

Many firms experience what the pros call ' bulge finance needs ' ; this might be at times of the seasonality of the business , or other reasons . That's when the FACTORING solution makes sense.

Factoring is often viewed as a ' bridge ' to more traditional financing, typically Canadian banks . Being able to demonstrate a successful factor finance facility allows your company to build a track record in stability, thereby improving your commercial credit history .with one of them. In times of economic crisis, pandemics included alternative financing sources such as  AR Financing allow your firm to weather the storm .

Every business owner can relate to the constraints Canadian chartered banks come under  for the financing of business in a downturn -  Downturns might be company-specific or part of a general industry-specific or broad economic downturn. That situation tends to lead to a downward spiral in many firms as business credit tightens . FACTORING COMPANIES typically finance companies in good times and in less than good times.

Can Factoring Improve Profits?

Many businesses considering factoring finance tend to compare it to more traditional business finance solutions such as those services offered by banks. Many suppliers and vendors to your business offer early payment discounts  - one such common offering is' 2% net 10 days '. That allows you to deduct 2% of the suppliers invoice based on paying early. Firms that have incoming cash tied up in a/r are of course unable to take advantage of this discount . But factoring solutions allow you to take that discount, thereby lowering a very significant amount of the factoring fee! In some cases you can purchase in bulk allowing you to further lower your cost of goods , thereby improving margins. As we have noted firms that are constantly battling the cash flow challenges can rarely take advantage of the two examples we have outlined.

Factoring Costs Laid Bare!  Assessment of 3 Critical Facts In Invoice Finance

We have already mentioned the factoring fee, that is the actual charge by your commercial financing partner to finance invoices on an ongoing basis.  The decision on what that fee is becomes based on a number of factors assessed by your factoring firm. Those data points include  your clients overall industry profile, your own firm's general creditworthiness , and the amount of the facility you require.

The next key factor can be significantly  a cost significantly controlled by yourself,  namely your average DSO / collection period. So if you turn over your receivables more quickly that monthly factoring fee stays low, as the charge is based most often on a 30 day collection period. Therefore your costs would increase if your client paid in 60 days. Companies with good credit extension policies are a winner in the factoring game.

 Example Of Factoring Cost :
 Invoice Amount -  $ 20,000
 Factoring fee - 1.5% = $300
In the above example your firm would get 90% of the 20,000 as soon as you invoice, namely $18,000. 
The balance of $2000 less the $300 fee is paid to your immediately on payment by your client.
In the above example you have not incurred debt, become cash flow positive immediately on invoicing, and continue to maintain general creditworthiness with your suppliers, operating costs, etc.
 A  harsher reality of factoring solutions is the fact that many firms these days simply cannot  meet the demands of Canadian banks when it comes to accessing the business credit they need. Alternative finance solutions such as factoring and asset based lending allows your firm to leverage it's assets and sales revenue potential. Thousands of Canadian businesses utilize this method of cash flowing sales when they otherwise could not achieve. While in the majority of cases the factoring firm, or asset based lending firm becomes your ' senior lender ' these facilities also can be complementary to other business credit you have in place. It's all about your total exposure to your lenders versus the amount of  collateral you have in receivables and other assets.Trends now show that thousands of businesses in Canada find themselves unable to get the financing they need. Whether they are ' cut off ' or simply ' restricted' in getting capital into their firm the repercussions can be anywhere from being mild to severe, severe of course meaning closing your business.

So why is receivable finance funding different, and how does the business owner/manager asses the cost of factoring A/R into a sensible arrangemen

The essence of invoice discounting, aka ' factoring, aka ' invoice discounting ' is simply the ability to monetize sales directly into cash as you generate revenue. That in itself is a powerful statement. Where things go wrong is when your business locks itself into a facility that either costs too much, is unwieldy to operate, and simply doesn't mesh with your day to day operations. By the way, that absolutely doesn't have to be the case!

So if banks also margin receivables for cash flow for your business wouldn't Canada's chartered banks be the optimal solutions for cash flow finance. Well they would be that perfect solution if your business qualifies, and if you do qualify do you in fact have access to all the credit you need to grow the business when it comes to seasonality, large orders, cash flow bulges, slow paying clients, etc. The answer is that while our banks in Canada provide the best and most ' low cost ' solution the reality is that not everyone qualifies.

The short answer to bank versus non-bank funding in Canada, when it comes to A/R finance is that the bank bases its decision on your sales, profits, and balance sheet; Factoring, on the other hand, bases its finance formula only on your sales and the invoices generated from that revenue. Oh, and by the way, funding is in fact ' same day '. And it's only as complex as you want it to be, and the industry itself, unfortunately, does not always do a good job of explaining facilities; sometimes employing smoke and mirrors to hide costs and day to day facilitation of the financing. That's when you need clarity!




You have the ability to negotiate what is known as a  ' non recourse ' facility which allows you to transfer all the credit risk to your financing firm - albeit at a cost.

The key to a successful A/R finance program in Canada is your management of the program. The type of facility you enter into, as well as your ability to control what you finance and when is critical. And, as a kicker, our recommendation to clients is ' confidential ' facilities that allow you to bill and collect your own receivables in a manner that allows the competition to do only one thing - figure out where you are getting all that cash . Always keep in mind that the firm financing your receivables is typically more concerned with the overall quality of your customer based, so any firm that is perhaps facing financing challenges is not eliminated from being able to source funding. Knowing you have a strong underwriting partner to fund your sales is a key success factor in any business.

Finally, the concept of ' notification' and ' verification' should be high on the list of factoring due diligence. These two terms arise out of what we at 7 Park Avenue Financial call ' old school ' factoring, and involves occasional or constant verification of invoices with your clients.  At 7 Park Avenue Financial we tend to view this form of factoring as somewhat ' intrusive ', so our recommended and preferred solutions is Confidential Receivable Financing, allowing you to bill, and collect your accounts without any notification to clients, suppliers, etc. All the benefits, and less of the hassle!

Whether you're a start-up, medium-sized firm, or a large corporation, financing receivables can be a huge part of your business success. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor today who can assist you with the facility that makes the most sense for your unique needs.



7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

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7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.



Business financing for Canadian firms, specializing in working capital, cash flow, asset based financing, Equipment Leasing, franchise finance and Cdn. Tax Credit Finance. Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations.

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

Stan has had a successful career with some of the world’s largest and most successful corporations. He is an experienced

business financing consultant

.

Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.


Stan has over 40 years of business and financing experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in-depth, hands-on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.






Stan Prokop
7 Park Avenue Financial/Copyright/2020

How To Access Business Factoring For Cash Flow Success Via Receivable Financing

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Receivable financing solutions in Canada, often called  ' business factoring ',  offer a true ' second chance ' when it comes to the business owner/financial mgr’s ability to turn adversity into opportunity. This business finance solution goes by a few names: invoice factoring, invoice discounting, receivable factoring, etc.  There are different forms of factoring, so we forgive new clients at 7 Park Avenue Financial for sometimes getting overwhelmed with the terms!


The ability of your company to turn cash flow for business challenges into a major win in working capital and cash flow might just come from one of Canada's newer forms of business financing, called ' business factoring '. Spoiler alert -  Accounts Receivable factoring it's not that new!

Getting the order, and then getting paid. The old  ' cliché' of  ' the order is not complete until it's paid for '... as trite as that sounds, seems to hold true even today, especially for new, small and medium size firms.

Many clients we meet with are in the enviable position of getting larger orders and contracts than they might have imagined based on their innovative products and services. But with that success, as we noted, comes the challenges of cash flow financing.

During the past few years with all the economic turmoil it seems Canadian business financing options seem either limited or have disappeared - that's certainly how many clients feel. The impact of accounts receivable growth is a huge challenge, not to mention inventory and Purchase Order / Contract funding needs.

 Many companies find that traditional bank financing is restrictive to a point that Canadian banks can't meet their business credit needs. The concept of ' seeling a/r ' to a third party and generating immediate cash as you grow sales has become popular with thousands of companies in Canada.   This differs from assigning accounts receivable to a bank.

Note that almost all of the commercial factoring in Canada is done by non bank commercial lenders. Canadian banks will often refer customers seeing a/r financing to a specialty lender or an experienced advisor familiar with factoring.

Advantages of Factoring Vs. Other Types Of Financing 

There are of course some significant differences between a/r finance and the concept of a ' commercial loan '.  Primary is the fact that this type of business credit is not a ' loan' per se - your company does not take on debt on your balance sheet.  The amount of factoring financing is simply directly related to the amount of your A/R. Canadian borrowers will be happy to know that there is virtually no upper limit to the amount of factoring finance if your firm is growing and has good receivables, domestically or internationally. 

Borrowers know only too well that bank financing is tied to credit limits, annual reviews, and a variety of covenants, personal guarantee focus, and the potential requirement of outside collateral. Many Canadian firms feel the pressure to increase outside equity, and a good receivable financing facility will allow you to potentially avoid that need.

What Type Of Company Utilizes  Accounts Receivable Financing?

Almost every industry in Canada uses Factor financing.  Industries in the oil and gas sector, staff placement, manufacturing, distribution, wholesaling, trucking, technology and business services all are major clients of the receivable financing industry.

Although some businesses that are financially challenged in some manner, the proverbial ' bad credit ' industry statistics show that the factoring industry is experienced strong growth and popularity.


Business cash flow, a la ' cash is king ' has never been more relevant for the economy. Receivable financing allows firms to not be victimized by clients pay 30, 60 or dare we say it 90 days beyond stated payment terms. It's the SME sector that feels that pain the most, as larger corporations have access to more liquidity.

Business factoring can be called a subset of asset based financing - the monetizing of assets without taking on commercial business loans and term debt. The speed at which factoring facilities can be arranged is also an appeal to Canadian business owners and their financial managers. The concept of no installment payments has broad appeal to factoring clients.

Key Points in Determining the Financing Value Of Your Accounts Receivable 

Numerous factors are taken into account when commercial lenders are setting up your accounts receivable financing facility. It's all about the true value and quality of your a/r. When it comes to your accounts receivable ageing it's no secret newer invoices have greater value - numerous industry statistics validate that point.  Who your client is also is important. An extreme example has been given that a receivable owing to your firm from Google has more value than one owing from a local DVD rental store!

As a commercial borrower in a factoring facility the more info you have on your a/r base will result in a more cost effective facility.

What Do Factoring Companies In Canada Require To Set Up Your Invoice Purchasing Facility     

As a general rule borrowers will be pleased to know that the entire application process in setting up your facility is very simple and straight forward. Key information required includes :

1.     Standard credit application 
2.     Agings for a/r and a/p
3.     Confirmation of legal company name - ie articles of incorporation
4.     Sample invoice 

New clients of 7 Park Avenue Financial always want to understand how the advances and cost work when it comes to receivable funding. As a general rule your sales invoices are funding at 90% of their face value.  Your firm receives the balance of the invoice, ie the remaining 10%, less financing costs when your client pays the invoice. Invoice purchasing is now completed!

It should be noted that there is no requirement to finance all your a/r base, although many of our clients choose that route, allowing the facility to mirror a true bank line of credit.

So we have waxed eloquent on the problem- That's easy. You'd prefer a solution though!   Receivable financing, also known as factoring addresses the issues of your customers paying you in 30.60, or dare we say it, 90 days. You can carry those receivables and continue to make a high investment in current assets, or you can turn your sales into immediate cash.

Let's cover off some other basics around how this innovative method of business financing works.  When you sold the product or service you hopefully had enough gross margins in your cost of sales to make the sale profitable. If you are able to sustain another 1- 2% of gross margin erosion you can use receivable financing to turn sales into same day cash, which is what this financing is about. That is known as the factoring discount, which is a cost, and not an interest rate as some people believe.

So how does this all work? We're glad you asked! Let's reveal and recap in a manner that's understandable.  Your purchase orders or contracts must be ' clean ' from a viewpoint of being able to demonstrate you can recognize revenue on your shipment.  We should interject at this point that the banks will finance your receivables also, but that comes with much stricter criteria and limits on the amount you can finance.

That is why factoring has risen in popularity, it provides unlimited... yes... unlimited same day cash flow for your sales. Your challenge is to work with a trusted, experienced and credible business financing advisor who can steer you to the right partner with the type of facility that works for you.


Although traditional factoring along the lines of the U.S. model requires your customer to be notified we are in fact a fan of the type of facility that allows you to bill and collect your own receivables, for all the obvious reasons.  At 7 Park Avenue Financial we've called that Confidential Receivable Financing.

It's important for clients to understand at its most basic how factoring works. You are advanced, on the same day as you invoice approx 90% of funds for your invoice. The remaining 10% is a holdback which creates a reserve and also covers the financing charges. When your customer pays you or the factor you receive the remaining 10% of your invoice amount, less the financing charge.

In Canada the cost of factoring from accounts receivable factors ranges from 1-2% a month.  The cost of factoring revolves around some key points. They include:

Industry specific issues relating to your company  - some industries are occasionally ' out of favour"

Size of your Receivable base - a very general rule is that many facilities start in the 250k range, there is no upper limit, but any size of facility small or large can ultimately be financed with the expertise of a business financing consultant 

General level of creditworthiness of your client base as it relates to any major concentrations or invoice size, geographical location, etc

DSO! Business people need to be familiar with the concept of DSO -  ' days sales outstanding ' It is a key measure of any successful company. The largest and most successful corporations in the world have this a key measure of financial and profit performance. DSO is measured in days, lower is better and the turnover of your a/r can dramatically affect the cost of factoring.



Note that it is also possible to transfer all of the risk of bad debt to your funder, which is known as non-recourse factoring - these facilities naturally cost a bit more and are sometimes abetted by credit insurance. Factoring companies in Canada and advisors can provide your firm with more info on this additional investment in credit risk.



It turns adversity into opportunity because you grow sales with larger gross and net margins, and if you utilize the financing properly you are actually in a position to reduce much, in some cases all of your financing costs by taking discounts with your own suppliers or buying smarter and in larger quantities. Reversing the cash flow for a business problem - That’s a win win in the language of business.


In summary, it is important to realize how factoring works and why it can be valuable to your business, in good times and in less than good times! Your firm accelerates cash flow and literally unties the capital you have invested in sales to clients.


If you are looking to factor receivables seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your business factoring and A/R financing needs.





7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.



Business financing for Canadian firms, specializing in working capital, cash flow, asset based financing, Equipment Leasing, franchise finance and Cdn. Tax Credit Finance. Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations.

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

Stan has had a successful career with some of the world’s largest and most successful corporations. He is an experienced

business financing consultant

.

Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.


Stan has over 40 years of business and financing experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in-depth, hands-on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.









Stan Prokop
7 Park Avenue Financial/Copyright/2020



















 

How Does Receivable Financing Work ? Factoring 101 ! Now You Know

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Information on Account Receivable Financing in Canada

Most people agree that Canadian business model and the Canadian psyche differ from those of our friends in the United States in many aspects of business

Accounts receivable financing, also called ' factoring ' goes back to the 1400's and is an accepted way of doing business . Simply speaking it is the ability of a company to immediately obtain cash for their receivables , thereby augmenting cash flow . Factoring is generally viewed as expensive , as the company views the discount rate as the ' interest rate ' on the transaction .

Key benefit of Proper A/R Financing and Factoring :

Improved Cash Flow

In both the U.S. and Canada very typical accounts receivable factoring rates range from 1 - 2% per month. Issues that drive the overall rate are the over all transaction size, the credit quality of the debtor , and the historical time that the debtor has taken to retire invoices .

To be clear, when we talk about the participants in a factor transaction, there are three, the company selling the receivable, their customer ( the debtor ) and the finance or factoring firm . Choosing the right receivable financing companies is critical!

Customers choose factoring , or are forced into considering factoring, when they do not have bank financing, or the financing that is in place is not sufficient to fund working capital .

Companies in Canada have been slow to utilize factoring - there are numerous smaller finance firms that offer the service, and more predominantly, the landscape is covered with branch firms of U.S. and U.K. companies who are established leaders in their respective countries .

A few in Canada offer factor facilities, a fact not generally known to the Canadian business market .

More often than note smaller and medium firms who don't have access to traditional bank lines of credit utilize factoring . They use this financing facility to grow their business, maintain acceptable levels of cash flow, and ensure debt and government payments re taxes, etc . are made on time .

How much is it? No we aren’t in line at a department store, we're sitting with our clients who are always asking what the true cost of factoring receivables is and if a receivables financing facility is their real solution for working capital problems. They ask other questions also, such as how the facility works and what is the best type of facility for the Canadian business marketplace, so we we'll cover those off also .



We don’t think there is more of a misunderstood business financing in Canada, notwithstanding the fact that receivables financing is growing in popularity traction everyday. The biggest stigma around the topic is really the true cost, and we use the word true cost because many Canadian business owners and financials managers simply don’t understand the components of that true cost, and more so, how these costs can be significantly offset and reduced.

We'll point out that coming up the rear fast and furious behind true cost are the issues of how the facility works and what type of facility is the best one in Canada - as there are several types.

To properly address our issue lets quickly define our subject - factoring, ( also called receivable discounting and invoice financing ) is simply the sale of your receivables to a third party firm, that firm providing you with immediate ( and we mean same day!) cash to finance your business

One of the misconceptions clients have around pricing is related to the fact that you receive (depending on who you are dealing with) 80-90% of your invoice amount in a receivables financing scenario. This must be taken into account when you are looking at total factoring cost.

One thing that constantly disturbs us is that the terminology mumbo jumbo that many factor firms use when they are offering you pricing on your facility. That’s why it makes total sense to talk to a trusted, credible, and experienced Canadian business financing advisor that will work with you through the (industry created) maze of factoring, factoring cost, and day to day paper flow.

You can quickly and easily focus in on the true cost of factoring by simply keeping in mind three things that you need to know - they are:

1. The percentage that you are advanced on your invoice (refer to our previous comments)

2. The discount rate charged on the advance

3. The length of time that you typically collect your receivables in

Most business owners are not readily facility with their DSO, their ' day’s sales outstanding '. You have to be, because it’s an ongoing measure of the time it takes to collect your receivables in days. It’s calculated simply by taking your receivable on an annual basis, multiplying them by 365 (days) and then dividing that number by your sales for that time period.

Therefore, if you know your collection period, and get an honest, clear answer on our three points you can easily determine the cost of factoring.

Let’s give you a clear example: Your factor firm advances you 80% of your invoice. Their discount rate is 3%. So if you are in the lenders shoes your annual return on the client (that’s you!) is simply: Discount rate % times 365 days Divided by number of days invoice is outstanding.

In Canada that rate is typically going to work out to be in the 1.5-3% per month range depending on the lenders perception of the size and quality of your accounts receivable portfolio.

Is that expensive financing? You tell us, because if you take into account the receivables financing facility provides you with unlimited cash flow to generate sales and profits, and that you can use the cash to offset financing costs, well... we dont think so .Costs can be offset by using the funds to take supplier payment discounts, and purchase in larger volumes and better prices re your inventory needs, etc.

Typical advance rates on factored invoices are in the 80-90% range . Firms utilizing factoring are often not aware of the mechanics of how these facilities are priced on a daily or monthly basis. Two different business models exist within the industry, recourse, and non- recourse . If the debtor does not pay the invoice a recourse transaction forces the company to pay back the factored amount, or replace it with another invoice .

As stated, many firms do not properly focus on the many nuances of the factoring transaction . These include the amount held back by the factor firm, when the hold back is released, and most importantly the paper flow involved in the transaction.

Canadian firms have tended to view factoring as very intrusive . They , unlike their U.S. and U.K. counterparts , have not appreciated that their customers are contacted regularly by the factor firm to verify invoices, demand payment, etc.

Ultimately the Canadian market seems to desire a non-notification factor model which is not widely available .

Prudent business owners and financial executives , both in the U.S. and Canada , can enhance their use of factoring by negotiating arrangements specific to their business , re receivable size, quality, customer time to pay, etc . Many firms also quickly realize the cost of the factoring can be significantly offset by the use of additional cash to negotiate supplier discounts, take trade discounts offered by suppliers, and in general , improve supplier relations .

When you are considering factoring a/r seek out and speak to a trusted, credible and experienced Canadian business financing advisor with a track record of business finance success, who can assist you with your working capital and cash flow needs.



7 Park Acvenue Financial:
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com


Business financing for Canadian Firms , specializing in working capital, cash flow, asset based financing , Equipment Leasing , franchise finance and Cdn. Tax Credit Finance . Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations .

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.

Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.



Stan Prokop