Financing Your Canadian Business

Invoice Factoring Group

Obtaining business funding for a company in Canada can be challenging. In general, most lending institutions have very strict lending requirements which make getting a business loan very difficult. Unfortunately, this problem also affects a disproportionate amount of entrepreneurs and small business owners because they often can't meet a banks financial reporting and collateral criteria. Fortunately, many financing problems can be fixed without using a conventional business loan.

Do your clients pay their invoices in up to 60 days?

Offering term credit - the ability to pay an invoice in up to 60 days - is a common practice in Canada. As a matter of fact, many large corporate clients demand getting credit terms as a condition of doing business with you. As a business owner, you have little choice. You can take it, or leave it. But if you leave it, it's unlikely that this customer will ever return to you.

Offering terms is one of the most common sources of cash flow problems. You have to pay to service your client and it will take up to 60 days to recover your costs and realize your profit. The only way to do this is if your company has a substantial cash reserve. Few small companies have any meaningful reserves, and usually operate on a thin margin of error. This means it's easy to get overextended. When this happens, you may need to juggle supplier payments, delay payroll or turn new business away. Neither option is appealing. However, you would not have this problems if your clients paid quickly.

What to do if your clients won't pay quickly

One alternative that has been gaining popularity in Canada is to factor your invoices. In Canada, factoring is becoming a solution that can help companies with working capital problems due to slow paying customers.

This program offers a simple value proposition. It can finance your invoices from slow paying corporate clients. This gives you immediate access to funds and provides the working capital you need to pay for your current expenses. But more importantly, it gives you the ability to grow your business by offering payment terms to more customers. When used correctly, it come become a tool that fuels company growth.

How are transaction structured?

More invoice financing transactions are structured using a two payment method, where the factoring company buys your accounts receivable in two installments. The initial installment is called the advance and is for 80% if the invoice. This installment is provided immediately. The second installment, called the rebate, covers the remaining 20%, less any costs. The rebate is wired as soon as your client pays the invoice and their payment clears.

Who can qualify?

Financing invoices is available for most small and mid size companies. The main collateral for the transaction are your invoices. This means that your clients must have solid commercial credit. This is very important since their payment ability secures the whole transaction. Also, your company must be free of liens and legal problems.

However, factoring is not for everyone and works best for companies that:

  1. Have high gross margins - 15% or above
  2. Have clients with good commercial credit
  3. Has a good ongoing relationship with their customers
  4. Have working capital problems specifically due to slow paying clients

Rates as low as 1.5%. Advances as high as 85%.
Click here for an online quote or call (866) 730 1922

Next: What is receivables factoring?

Previous: Invoice factoring case study