How Accounts Receivable Factoring Loans Improve Cash Flow

 

 

 

Factoring Finance Canada | Transform Your Invoices into Cash

 

 

A/R FACTORING - CANADA

 

INTRODUCTION

Accounts receivable factoring loans offer a powerful financing tool for businesses seeking to transform unpaid invoices into immediate cash flow.

 

 

Feel familiar with factoring accounts receivable advantages in the Canadian landscape?   We think it's time for a ' cash flow ' roll call! 

 

What Is Factoring? Great Question! It's all about access to cash!

 

Accounts receivable factoring companies help Canadian businesses secure consistent cash flow by converting unpaid invoices into immediate working capital.  Understanding the mechanics and benefits of accounts receivable factoring/invoice financing can unlock new growth potential for your business.

 

IMPORTANT - KNOW THE DIFFERENCE 

 

Factoring, asset-based lending (ABL), and working capital loans all improve cash flow, but they work differently.

 

Factoring converts outstanding invoices into immediate cash by selling or assigning receivables to a finance company.

 

Asset-based lending provides a revolving line of credit secured by business assets such as accounts receivable, inventory, equipment, or real estate, making it well suited for larger and growing businesses.

 

Working capital loans are typically fixed-term or unsecured loans based primarily on the company's financial performance and credit profile rather than specific collateral, providing short-term funding for expenses such as payroll, inventory, or seasonal cash flow needs.

 

 A Solution For Managing Tight Bank Credit For SME's In Canada ?  You Decide!

 

If Canada's factoring market is growing by roughly 20% annually, that is not just a financing trend—it is evidence that more Canadian SMEs are using receivables as a source of working capital when conventional bank credit becomes constrained.

 

For many businesses, factoring has evolved from a financing option of last resort into a strategic liquidity tool.

 

Here are the key reasons this growth is valuable.

 

1. It provides liquidity when banks tighten lending

Banks generally underwrite operating lines based on historical financial statements, debt-service coverage, leverage, and covenant compliance. During periods of tighter credit, even profitable SMEs may receive:

• Reduced operating lines
• Slower approval times
• Higher collateral requirements
• More restrictive covenants
•  

Factoring focuses primarily on the quality of accounts receivable rather than historical profitability. A company with investment-grade customers but temporary cash-flow pressure can often obtain funding when additional bank credit is unavailable.

 

 

2. It converts sales growth into immediate cash

 

One of the biggest challenges for Canadian SMEs is that growth consumes cash.

For example:

• Sales increase 30%
• Accounts receivable increase 30%
• Payroll and suppliers must be paid today
• Customers pay 60–90 days later
•  

Factoring converts up to 80–90% of eligible invoices into cash within 24–48 hours, allowing businesses to finance growth without waiting for collections.

 

Making Money With Factoring? The Supplier Discount Playbook! (Factoring Companies Purchase Receivables For Immediate Cash

 

Supplier discounts can often more than offset the cost of factoring when early access to cash allows a business to purchase inventory or raw materials at lower prices.

Example 1: 2% Factoring Fee vs. 5% Supplier Discount

A manufacturer issues a $200,000 invoice payable in 60 days.

Factoring advance: 85% = $170,000
Factoring fee: 2% = $4,000
Supplier offers 5% discount for payment within 10 days.

Using the factored funds:

Supplier invoice: $160,000
5% early-payment discount: $8,000 saved
Factoring cost: $4,000
Net financial benefit: $4,000

Even after paying the financing cost, the company is ahead because the supplier discount exceeds the factoring fee.

 

 

3 Uncommon Takes on Factoring Finance

 

 

1. Factoring finance can increase purchasing power—not just liquidity.

Many businesses focus only on receiving cash earlier. The greater benefit can be negotiating supplier discounts, purchasing larger quantities of inventory, or securing scarce materials before competitors.

 

2. Your customer quality often matters more than your balance sheet.

Unlike many conventional loans, factoring finance evaluates your customers' payment strength. Companies with investment-grade or well-established commercial customers may qualify even during periods of rapid growth or temporary earnings pressure.

 

3. Factoring should often be viewed as a temporary growth strategy.

Many growing businesses eventually migrate from factoring finance into confidential receivables financing or an asset-based lending revolver as revenues, reporting systems, and collateral pools expand.

 

KEY POINT - FACTORING / INVOICE DISCOUNTING

 

Factors rarely finance a business if more than 50% of its receivables book belongs to a single customer, leaving specialized subcontractors in a bind.

 

Understanding Accounts Receivable Factoring Loans

 

One method by which Canadian business owners and financial managers can fix the proverbial short-term ‘cash flow is tight’ problem is to agree to sell accounts receivable to a finance factoring company.

 

Accounts receivable factoring companies provide immediate funding by advancing a significant portion of your sales, typically around 90%, and holding back the remaining 10% until the invoice is paid, less financing costs.

 

This method is often compared to financing options like business lines of credit. Still, a third-party factoring company can offer quicker access to funds and less stringent approval criteria.

 

It’s a more straightforward process than you think. You are advanced 90% of your sales as you generate them, and the 10%, a ‘holdback’ of sorts, is remitted to you promptly, less financing costs, once your clients have paid the invoice. Pretty simple, right?

 

New clients at 7 Park Avenue Financial will ask, ‘Is factoring receivables a good idea?’

 

The answer to that question is more straightforward than you think. If your firm can absorb a margin reduction/fee in the 1-2% range, your firm can achieve unlimited cash flow to run and grow your business.

 

The ability to finance sales and reduce your investment in accounts receivable provides immediate funds for day-to-day operations. Business liquidity is at the heart of long-term corporate success.

 

 

A/R FINANCING IS SAME DAY FUNDING OF SALES - THATS THE FACTORING PROCESS!

 

 

Some advantages of this type of business financing for accounts receivable seem more obvious than others; the most obvious being that you are no longer in ‘wait mode; you’re in ‘ cash flow’ mode!

 

With technology and banking systems as sophisticated as they are today, you typically get your funds on the same day!

 

Accounts receivable factoring works by submitting invoices to a factoring company, receiving an advance on the invoice amount, and then getting the final payment once the customer pays. That helps power business growth, which the business owner likes!

 

 

ANY SIZE AND TYPE OF BUSINESS CAN UTILIZE ACCOUNTS  RECEIVABLE FULL -SERVICE FACTORING

 

 

Broadly speaking, factoring accounts receivable financing is available to every type of firm, from start-ups to Major Corporations.

 

We certainly can’t make that statement about all other types of Canadian business financing - that is the uniqueness of a factoring company.

 

Selecting a trustworthy financing partner - Accounts receivable factoring works for all commercial and government receivables is crucial.

 

 

ALL A/R CAN BE FINANCED - EVEN OUT-OF-COUNTRY CLIENTS -  NON-RECOURSE FINANCING ALSO AVAILABLE

 

Another advantage of a small business using this financing method is the comfort it brings, knowing Canadian firms can utilize the financing for their Canadian and U.S. clients - currencies and geography are not an issue.

 

Suppose your firm has foreign receivables. In that case, it typically needs to have some credit insurance in place - but that’s also the case if you could secure commercial bank financing for those same sales to avoid cash flow problems.

 

It's all about financing the balance sheet and not waiting what seems like 90 days to collect a/r these days.

 

 

ARE THERE ALTERNATIVES TO FACTORING?

 

Of course, there are other alternatives to factoring—they might include business credit cards, working capital term loans, and external collateral, but when you consider the ease and simplicity of the factoring process, the other solutions often pale in comparison.

 

You are, in effect, able to turn your company into a cash flow machine, generating sales and cash simultaneously.  

 

WHAT IS THE COST OF FACTORING ACCOUNTS RECEIVABLE?

 

 

It's not a perfect world, of course, so your firm needs a decent gross margin to absorb the 1-2% finance charges, and you have to spend some time understanding the approval process and the types of factoring available.

 

To calculate accounts receivable factoring costs, it's important to understand the factoring fee and the advance rate. Prompt collection of receivables reduces factoring fees.

 

Your Cash Conversion Cycle (CCC) has a direct impact on whether factoring makes financial sense and on your effective financing cost.

 

Why Does the Cash Conversion Cycle Matter?

 

The Cash Conversion Cycle measures how long your cash is tied up in operations:

Cash Conversion Cycle = Days Inventory Outstanding + Days Sales Outstanding − Days Payables Outstanding

 

The longer your CCC, the longer your business finances payroll, inventory, and operating expenses before customers pay.

 

Factoring shortens the Days Sales Outstanding (DSO) portion of the cycle by converting invoices into cash within 24 to 48 hours.

 

How CCC Affects the True Cost of Factoring

 

Many businesses compare only the factoring fee. A better comparison is:

Factoring Cost − Cash Flow Benefits = Effective Financing Cost

 

If faster access to cash allows you to:

 

• Capture 2% to 5% supplier discounts.
• Avoid production delays.
• Purchase inventory before price increases.
• Accept additional customer orders.
• Eliminate overdraft or late-payment charges.

 

then the economic benefit may exceed the factoring fee.

 

 

THE BEST TYPE OF FACTORING? WE HAVE IT!

 

Do we have one favourite recommended solution for this form of financing? We do. It’s a type of factoring known as ' confidential invoice finance ', which allows you to bill and collect your own A/R while retaining total control of the client relationship.

 

Case Study: Factoring Finance Supports Rapid Growth

From The 7 Park Avenue Financial Client Files

 

Company
ABC Company, an Ontario commercial security guard services firm serving property managers, construction sites, and institutional clients.

 

Challenge
Rapid growth created payroll pressure as guards were paid bi-weekly while customers paid in 60 to 75 days. The bank declined to increase its operating line for the trade finance receivables - forcing the company to delay new contracts.

 

Solution
7 Park Avenue Financial arranged an invoice  factoring finance facility  - full-service factoring , advancing 88% of eligible invoices within 24 hours. Flexible terms preserved the option to transition to lower-cost financing later.

 

Results
Payroll shortages were eliminated, two major contracts were secured, and revenue increased 40% in nine months. After 14 months, the company transitioned to a lower-cost confidential receivables financing facility with a stronger financial position.

 

CASE STUDY # 2

FROM THE 7 PARK AVENUE FINANCIAL CLIENT FILES

 

Case Study: Factoring Improves Working Capital

Company
ABC Company, an Ontario manufacturing and distribution business.

Challenge
Strong sales were creating cash flow pressure as customers paid in 60–90 days. With its bank operating line fully utilized, the company needed working capital to purchase inventory and hire staff without taking on additional debt.

Solution
7 Park Avenue Financial arranged a confidential factoring facility that advanced 85% of eligible invoices within 24–48 hours, converting receivables into immediate working capital while maintaining customer relationships.

Results
The company strengthened cash flow, purchased additional inventory, hired two production employees, and reduced reliance on its bank operating line, improving financial flexibility for future growth.

 

 

 

Key Takeaways

 

• Improves cash flow without waiting for customer payments.
• Financing availability generally increases as sales grow.
• Decisions are often based more on customer credit quality than business profitability.
• Can reduce reliance on overdrafts or unsecured borrowing.
• Frequently serves as a stepping stone toward larger asset-based lending facilities.

 

 

• Collateral Value: The core of ABL is understanding the value of collateral assets, including accounts receivable, inventory, and equipment.

 

 

• Borrowing Base: This represents the maximum amount a lender will advance, usually a percentage of the collateral’s value, based on outstanding invoices, inventory, and equipment, if applicable.

 

 

• Lender Monitoring: The lender regularly assesses and monitors the collateral’s value to ensure loan security and compliance with the factor facility or line of credit

 

 

• Advance Rate: The percentage of the collateral's value that can be borrowed, typically lower than 100% to account for risk.

 

 

• Reporting Requirements: Regular reporting of the borrower's financial records and collateral to verify and maintain the borrowing base.

 

 

 

CONCLUSION

 

Call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you in maximizing the factoring account receivable advantages you have been looking for to enhance your cash flow prospects in your regular or supply chain challenges.

 

 

FAQ/FREQUENTLY ASKED QUESTIONS

 

What are accounts receivable factoring loans?

Accounts receivable factoring loans involve selling your unpaid invoices to a factoring company in exchange for an immediate cash advance, improving your business's cash flow.

 

How does accounts receivable factoring benefit my business?

Factoring companies provide instant working capital, reduce the burden of debt collection, and allow you to focus on growing your business without worrying about cash flow issues.

 

Are accounts receivable factoring loans suitable for small businesses?

Yes, small businesses can benefit significantly from using an accounts receivable factoring company, as it provides quick access to funds without requiring traditional loan approvals or additional collateral.

 

How do I choose the right factoring company?

Look for a reputable factoring company with transparent fees, flexible terms, and industry experience to ensure the best service and support.

 

What is the difference between recourse and non-recourse factoring?

In recourse factoring, your business retains some liability for unpaid invoices on eligible accounts receivable. In contrast, non-recourse factoring shifts the risk to the factoring company, offering more protection on the invoice value,  but usually at a higher cost. Many factoring companies offer both solutions, as well as credit insurance if required.

 

 

How can I improve my business credit score?

Maintain timely payments, reduce outstanding debts, and regularly review your credit report for accuracy to improve your business credit score.

 

What are the alternatives to factoring loans for improving cash flow?

Alternatives include business lines of credit, merchant cash advances, and short-term business loans, each offering different terms and benefits.

 

How does invoice discounting differ from factoring?

Invoice discounting involves borrowing against unpaid invoices without selling them, retaining customer management, and typically involving lower fees.

 

What is the impact of factoring on customer relationships?

Factoring companies often handle collections professionally, maintain positive customer relationships, and free you from the hassle of debt collection.

 

Can factoring loans affect my business’s financial statements?

Factoring can improve liquidity ratios and balance sheets by converting receivables into cash, potentially enhancing your business's financial health.

 

 

What assets are typically used in asset-based lending?

Assets commonly used as collateral include accounts receivable, inventory, machinery, equipment, and sometimes real estate.

 

How does the borrowing base work in asset-based lending?

The borrowing base is the total value of eligible collateral, determined by the lender, from which they calculate the maximum loan amount available to you.

 

 

 

 

Statistics on Factoring Finance

 

• Global factoring volume is estimated in the trillions of USD annually, with Europe and North America as the largest markets. wikipedia

• In Canada, non-bank receivable financing (including factoring) is a key funding source for SMEs that cannot secure sufficient bank working capital. canadiansme

• Typical advance rates in North American factoring range from 80% to 95% of invoice value, with fees often 1–2% per 30 days depending on risk and volume

• Many Canadian factors can fund qualified invoices within 24–48 hours after initial setup, significantly faster than traditional bank loan approvals.

 

 

CITATIONS

 

FCI. "FCI Releases 2025 World Industry Statistics as Global Factoring Market Surpasses €4 Trillion." Amsterdam: FCI, 2026. https://fci.nl.

Global Trade Review. "US Factoring Revenues Soar as Global Turnover Hits Record Highs: FCI." London: GTR, 2026. https://www.gtreview.com.

Medium/Prokop"Factoring Financing in Canada: Your Path to Quick Capital Access".https://medium.com/@stanprokop/factoring-financing-in-canada-your-path-to-quick-capital-access-bc1321a2b3af

Statistics Canada. "Survey on Financing and Growth of Small and Medium Enterprises." Ottawa: Statistics Canada, 2023. https://www.statcan.gc.ca.

7 Park Avenue Financial ."Business Receivable Factoring – Rethinking AR Finance Solutions".https://www.7parkavenuefinancial.com/business-receivable-factoring-ar-finance.html

Business Development Bank of Canada. "Financing Solutions for Canadian Entrepreneurs." Montreal: BDC, 2025. https://www.bdc.ca.

Secured Finance Network. "Factoring: A Complete Guide for Business Owners." New York: SFNet, 2023. https://www.sfnet.com.

Prokop, Stan. "Working Capital Solutions for Canadian SMEs." Oakville: 7 Park Avenue Financial, 2024. https://www.7parkavenuefinancial.com.

 

 

 

Excuse Us For Pumping Up Types Of Accounts Receivable Funding In Canada !

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Intrigued By Factoring Finance In Canada?

Receivable Financing Lessons That Will Pay Off

Are some types of accounts receivable funding and factoring financing better than others? We're often accused of ' pumping’, aka ' promoting' this type of Canadian business financing for firms of all types in Canada. Why is that?

Is receivable financing, on its own or blended in with another financing a ' holy grail ' of business finance? Not really, of course, but it’s an effective solution that's often very misunderstood when it comes to the mechanics of it and the cost. Let's explain.

When times get tough or challenging for small and medium sized firms in Canada business owners and their financial managers can be forgiven for doing everything up to an including panicking .

A variety of situations can exist, sales slow down, or the opposite... major opportunities arise that cannot be taken advantage of. The recession that we supposedly are out of now certainly leveled the playing firm for a lot of firms, who saw their competitors in some cases even, disappear. Inventory and accounts receivable financing solutions are highly sought after.

So, when you consider accounts receivable funding and financing as one of your alternatives what are in fact some of the considerations? In the case of A/R finance it’s a simple one, freeing up assets for working capital and cash flow.

It actually is very possible also for you to consider acquiring a competitor or synergistic opportunity via factoring, as the target firms receivables, and yours could in fact finance the acquisition. Naturally other assets and factors come into play, but it’s certainly possible.

Accounts receivable funding should be viewed as a source of funding that you have already been approved for - especially if you're having some of those challenges we have talked about.

Again, at the risk of ' pumping ‘ / promoting invoice factoring as a business line of credit we maintain its one of the most flexible around . First of all, once your facility is set up you don't have to use it all the time, it’s up to you as to when you draw down and pay for those funds. Think of it as using it like a business credit card, using it when you need funds. You're simply making a borrowing decision that minimizes finance expense.

The amount of funding available is directly related to your sales and receivables. Those amounts of course change everyday as you sell and collect receivables.

As we said, your A/R finance option can be stand alone, or you can combine it with inventory and equipment assets that are all combined into one borrowing facility.

Our recommended solution is a confidential invoice finance solution, one that allows you to go against the grain of other offerings, putting you in a position to bill and collect your own A/R with notice to any clients, suppliers, etc. It's a solid solution when you don't have access to more traditional financing.

When it comes to costs many business owners will find that when they understand the true cost, i.e. the cost of carrying a/r already, as well as opportunity cost... well it simply might make tremendous sense to consider this unrestrictive financing when compared to other... or no.. Solutions.

Speak to a trusted, credible and experienced Canadian business financing advisor for solid advice on this Canadian finance solution.







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


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

Receivable Financing Is The Equivalent In Going From Poor To Rich In Business Cash Flow

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Information on the Best Type of Receivable Financing In Canada

Can working capital factoring solutions be our business version of ' poor ' to ' rich '? It's an interesting analogy if only for the fact that the receivable factor firm solution, properly done creates capital you never had. Let's try and 'connect the dots' in those solutions so the business owner / financial manager sees a clear path to business cash flow freedom. Let's dig in.

There are of course options in working capital finance - they include taking on debt under a working capital term loan or mezzanine unsecured cash flow loan; or the traditional route of Canadian chartered bank financing - theoretically available to all but unfortunately not always to those that need it most.

So why does financing your sales via A/R factor financing a logical step to business capital freedom? For a starter that low cost bank line of credit may not be available to your firm for many different reasons. If for any number of reasons your firm does not qualify for bank credit you're back to square one... our version of business homeless!

Many firms have the most incredible problem imaginable - they are too successful and growing too quickly. That ' rush ' from getting a large new contract or purchase order or seeing sudden surges in sales brings working capital nightmares, as more and more funds are tied up in materials, inventory, and finally accounts receivable

In certain situations your working capital is required for expansion needed for lease/loan payments on new assets, or marketing and headcount growth. Many clients we meet do great business only at certain times of the year - that seasonality causes cash flow needs to rise and fall dramatically at certain times, sometimes unexpected.

One final situation is the whole issue of payment terms and collections. Even large corporations are often typically the ones that pay the slowest, and then there’s... the government!

While certain situations immediately disqualify you for bank financing (negative net worth, fluctuating profits and cash flows, huge jumps in sales revenues) it’s these exact situations which make your firm a solid choice to be financed by a receivable factor.

By the way, in many cases a working capital factoring solution can be a component of a ' total ' asset based lending deal, whereby your A/R, inventory and un-liened equipment are combined into on solid business line of credit. It's typically called an ' ABL ' line by the pros.

Is there one type of receivable factor solution that works best? In our opinion it's non -notification CONFIDENTIAL RECEIVABLE FINANCING , allowing you to bill and collect your own receivables, draw cash against sales when you need it, and only pay for what you are using .

If you want some help in connecting the dots in A/R financing solutions seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with in that ' homeless' to ' rich' transition in business capital!






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


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

Accounts Receivable Factoring Finance in Canada

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Why Factoring Accounts Receivable Is Your Cash Flow Machine

Information on accounts receivable factoring finance solutions in Canada. This type of Canadian business financing solves the cash flow challenge businesses in the small to medium enterprise sector face everyday

Guess what? Whether you are a start up, an established business, growing like crazy, or just trying to survive and stay competitive - you need business working capital financing. That is why one solution might be accounts receivable factoring in Canada.

We hasten to point out that while receivable factoring , factoring accounts due to your firm is often used by firms that are unable to get traditional financing that some of Canada largest corporations utilize this method of working capital financing to grow . Larger more sophisticated firms might call it securitization, or make it a component of an asset based lending facility, but, bottom lines it is still called factoring.

Canadian firms gravitate to the benefits of factoring as they are significant relative to financial resources they might be otherwise unable to obtain. At the core of the factoring accounts solution is simply the ability of your firm to get a predictable cash flow in place that is, in essence, unlimited. Why is that? Well it is because as your sales grow you create receivables and if you cant financing those receivables with traditional bank lines or working capital term loans you have the option, using receivable financing, of turning those receivables into cash flow at your discretion. So you can factor one receivable, all your receivables, or some of your receivables – you make the call!

Another way you can view this type of business financing is simply that it’s a mechanism to link your sales to your cash flow immediately. Although some view the cost of this type of financing as a deterrent we can say , after discussions with many clients, that most business owners and financial managers don’t understand the true costs of factoring, or , an even better way to put it that they don’t understand the costs of not being able to discount their receivables .

One other critical aspect of factoring is simply that it’s not debt – you are not adding debt to your balance sheet – you are simply monetizing one of your largest and most liquid assets, your receivables. In some cases if we term this type of facility a ‘working capital ‘or ‘asset based lending’ facility an inventory component can also be considered for financing, thereby even further increasing your overall liquidity.

As we said before the true beauty of this type of cash flow financing lies in the fact that it is applicable for companies of all size and type of business. As a result if your business is experience challenges, has tax or lien problems, etc you can still be a solid candidate for this financing.

Understand the basics. That’s what we tell clients when they ask us how factoring work, what are the different types, and how does a business assess the costs. Let’s recap some of those basics. If you have a bank line of credit your receivables are owned by your firm, but they are assigned to the bank, which finances them. In factoring accounts receivable are sold, giving you immediate cash , almost same day, in fact usually the same day . You are then in a position to grow sales and extend credit to customers.

Costs and they way factoring works on a day to day basis should be understood also. Invoices are typically funded in the 90% range, meaning you get 90% of funds for the invoice immediately, the rest is held back. Factoring fees in Canada vary from less then 1% per month to 2-3% per month. Factor firms in Canada don’t view this as an interest rate; they call it a discount fee. We point out to customers that they have potentially the ability to recoup a huge part, if not all of that fee by using funds to take supplier discounts and negotiate better pricing. The biggest bottom line is the elimination of your working capital worries.

In Canada things get confusing because there are many factor firms, some are foreign based, some are Canadian, some are large, some very small and unable to services your needs from a viewpoint of capital you require . In many instances the factor firm will bill and collect your receivables, we are not in favor of that method and strongly suggest you maintain account and customer control by negotiating a facility that allows you to bill and collect.

You have now seen many of the advantages of receivable factoring, and should understand now the basic of ‘how it works’. Speak to a trusted, credible an experienced business advisor in this area to determine how you can be in control of your working capital and cash flow needs.



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

Direct Line = 416 319 5769

Office = 905 829 2653

Email = sprokop@7parkavenuefinancial.com

Click here for 7 PARK AVENUE FINANCIAL


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