Factoring has been gaining popularity in Canada as a solution for companies with cash flow problems that stem from slow-paying customers. Basically, most large corporate customers take as long as 30 to 60 days to pay an invoice. These companies include a provision in their contracts that allows them to use this common business practice. Problems occur when your company cannot afford to wait up to 60 days for payment because you need funds to pay your expenses.
That is where factoring can help.
What is factoring?
A factor provides a financing facility that uses your invoices as collateral. The factoring company advances up to 80% of your open invoices for creditworthy commercial customers. This advance gives your company an immediate cash injection which can be used to cover operating expenses. Additionally, by accelerating the revenues tied to slow-paying invoices, a factoring company can stabilize your cash flow and provide predictable revenues.
Offer payment terms with confidence
A factoring facility allows you to offer payment terms to clients without having to worry about slow payments. Factoring allows you to pursue those large corporate clients, who often pay in 30 to 60 days, while keeping your cash flow in good shape.
Simple qualification requirements
Unlike most institutional funding products, invoice factoring financing has relatively simple qualification prerequisites. The most important requirement is that your corporate customers have good commercial credit. Aside from that, your company needs to be well managed and free of major problems.
Designed for small and mid-sized businesses
Factoring lines are designed specifically to help small and mid-sized businesses. Most factors are used to working with smaller companies and cater specifically to them. Also, when evaluating a prospect, factors do not look for collateral in the same way that a bank would. They understand that your invoices, and your ability to deliver good products and services to your clients, are your biggest assets.
Can be deployed quickly
Unlike most commercial lending products, a factoring facility can usually be deployed in as few as five to ten business days.
The line is flexible
Perhaps the most important advantage of factoring is that the facility line is designed for growth. And, since it’s indexed to your invoices, the line grows as your sales increase. Most line increases do not require you to repeat the full underwriting process and can be approved quickly.