Invoice Factoring Company
Affordable Alternative Financing
One of the oldest forms of financing, small business factoring is the cash-management tool of choice for many companies that are either not able to secure traditional bank financing, or see it as insufficient because of their high-growth levels. Factoring in Canada is very common in industries where longer-paying receivables are part of the business cycle.
In a typical arrangement, the client (you) makes a sale, delivers the product or service and generates an bill. The funding source (the factor) buys the bill and the rights to collect on that invoice by agreeing to pay you the bills face value less a discount–typically 2 to 6 percent. The factor generally pays 75 to 85 percent of the face value immediately and forwards the remainder (less the discount) when your customer pays.
An invoice factoring company in Canada is able to extend credit not to their clients but to their clients’ customers, they are more concerned about the customers’ ability to pay than the client’s financial status. That means a company with creditworthy customers may be able to factor even if it can’t qualify for a loan of their own.
Once used mostly by large corporations, factoring for small business is becoming more widespread. However, there are plenty of misperceptions about this type of financing service. This is largely due to the fact that in Ontario, Alberta and throughout Canada the industry is completely unregulated. We encourage you to take the time to look into a vendor and ensure they are well established.
Don’t Create Debt!
Invoice Factoring is not a loan; it does not create a liability on the balance sheet or encumber assets. It is the sale of an asset–in this case, the invoice. And while factoring is widely considered to be a more expensive form of financing than traditional bank loans, this may not always be the case. Yes, when you compare the discount rate factors charge against the interest rate banks charge, factoring costs more. But if you can’t qualify for a loan, it doesn’t matter what the interest rate is.
The idea that small business factoring is a last resort for companies that are in financial difficulty is a serious misconception in today business financing market. Most of the clients that a small business factoring company works with are very much in an upward cycle, going through extremely rapid growth. This service may provide the cash needed to fund growth or to take advantage of early-payment discounts that suppliers may offer.
For most businesses this is a short-term solution; most companies factor for two years or less. When looking for small business factoring company in Canada, shop around for someone who understands your industry, and can customize a service package that is a solid solution to their needs.
Benefits For Canadian Small Business
Factors have fought a misconception for years; one that assumes they are a last resort or the business equivalent of payday lending. In reality, owners of invoice factoring companies provide their clients with many helpful services to keep their business healthy. A factor provides funding that grows directly with a business’s sales. In addition, they provide information to set credit limits for customers, comprehensive accounts receivable reporting systems, and in some cases, professional collections services — tasks that are frequently neglected by most small businesses.
The cost of small business factoring in Canada, varies based on risk, industry and market position. For companies that struggle to secure bank lending and need additional capital to make ends meet or take advantage of growing market opportunities, factoring may be the ideal solution. If you have a chance to grow your business but lack the working capital, your competitors will step in, and you will miss a growth opportunity. If that’s the case, what is a flexible working capital solution worth?
- Unlimited capital – Factoring is the only source of financing that grows with your sales. As sales increase, more cash becomes available for you to use, which allows you to constantly meet demand.
- Take advantage of volume and early payment discounts – With improved cash flow, you will be in a position to take advantage of these discounts which directly affect the bottom line.
- No debt incurred – Factoring is NOT a loan and therefore, you are not incurring any debt. This keeps your balance sheet clean, making it easier to obtain other types of financing.
- Factoring is easy and fast – The application required to establish a factoring relationship is much simpler than other types of financing.
- Invoices are paid faster – Factors generally report payment experiences to Dun & Bradstreet or other credit agencies. A debtor who is aware of this will not want his credit impaired.
- Credit screening – A factor will provide you with credit information on new customers, thus allowing you to make better credit decisions.