What invoice factoring means
Factoring is the sale of a receivable at a discount. A business delivers goods or services to another business or a government body, issues an invoice on 30-to-90-day terms and, instead of waiting, sells that invoice to a factor. The factor advances most of the face value immediately, notifies the customer to pay the factor directly — or, in non-notification arrangements, collects through the business — and releases the balance less its fee when the customer pays. Because the factor is buying the customer’s obligation, it underwrites the customer’s credit and the invoice’s validity, which is why factoring is available to young businesses and weak owner files that no lender would touch.
How invoice factoring works in Canada
Setup takes a few days to a week: the factor verifies the business, checks the customers’ credit, confirms that no other lender holds a security interest in the receivables under the provincial PPSA — or the RPMRR in Quebec, where the factor registers its own rights — and sets an advance rate and a fee. From then on, individual invoices fund in one to three business days: submit the invoice with proof of delivery, receive the advance, and receive the rebate when the customer pays. Fees run roughly 1 to 5 percent of the invoice per 30 days outstanding, lower for volume, strong customers and short terms; some factors charge a flat fee per invoice and others a tiered rate that rises with the days outstanding.
| Product | What carries the file | Cost | Time to fund | Best for |
|---|---|---|---|---|
| Invoice factoring | Customers’ credit, valid B2B invoices | 1 – 5 percent per 30 days | 1 – 3 days after setup | Waiting on 30 – 90-day terms |
| Business line of credit | Deposits and owner credit 600+ | 10 – 60 percent APR on the balance | 1 – 3 business days | Recurring gaps of any kind |
| Working-capital loan | Six months of deposits, credit 550+ | 15 – 60 percent APR | 1 – 2 business days | Needs receivables cannot cover |
| Merchant cash advance | Card or deposit volume | Factor rate 1.15 – 1.49 | Same day to 2 days | Businesses without invoices |
| Bank receivables line | Two years of statements, monitored receivables | Prime + 1 – 4 percent | 2 – 6 weeks | Established B2B businesses |
Invoice factoring companies in Canada
Canada’s factoring market includes national factors serving every province, freight-factoring specialists built for trucking companies, the receivables-finance arms of the banks for larger businesses and the Canadian operations of North American factors. Legitimate factors publish their advance rates and fees, verify invoices rather than promising to buy anything, register their security openly and pay rebates on a set schedule. Freight factors add fuel cards, load boards and credit checks on shippers; general factors serve staffing, manufacturing, distribution, construction subcontractors and government suppliers. AIDBIZ compares factoring alongside lines and loans from its partners so a business is not factored when a cheaper product was available.
What factoring companies require
Invoices to creditworthy business or government customers with clear terms and proof of delivery, a customer list without dangerous concentration, no existing security interest over the receivables from another lender — an advance provider’s PPSA registration is the most common obstacle — and a business in good standing with the CRA. Time in business often has no minimum and the owner’s credit is secondary. Disputed invoices, progress billings without clear acceptance and consumer receivables are the usual reasons an invoice is refused.
Prepare the file
What to have ready
- Sample invoices with purchase orders or contracts and proof of delivery
- Customer list with contact details and payment history
- Aged receivables report
- Business registration, business number and government ID
- A PPSA search showing no prior security over receivables, or the prior lender’s agreement to subordinate
- CRA account in good standing
When factoring beats a loan
Factoring beats a loan when the problem is the wait for customer payment and the customers are strong: the cost attaches to a specific invoice for a specific number of days and stops when it is paid, the facility grows with sales without reapplying and the owner’s file barely matters. A loan or a line beats factoring when the need is broader than receivables, the customers are consumers, the invoices are small and numerous or the business would rather not have a factor in the customer relationship. Many B2B businesses hold both: factoring for the receivables gap and a line or a working-capital loan for everything else.