Selecting a Factoring Company in Quebec

Factoring financing has been gaining popularity in Quebec as a way to finance companies that need to improve their cash flow. However, Quebec is a special market when it comes to factoring, since it uses a set of laws that is slightly different from those of other provinces.

As a result, you must select your provider carefully. This article helps you understand the best process to find and choose a factoring company in Quebec.

Is factoring right for your company?

Before starting the evaluation process, determine if factoring is the right solution for your company. Although factoring is flexible, it can only help companies that meet a specific set of criteria:

  1. The company must have commercial clients
  2. The commercial clients must have good credit
  3. The company’s main problem must be that it can’t afford to wait 30 to 60 days to get paid by clients

If your company meets these criteria, then factoring your invoices is probably the right choice for you. If not, consider alternatives.

Follow these steps to select the best factoring company for your business in Quebec:

Step #1: Find candidates

There are two ways to find factoring companies:

  • You can search the Internet for companies that offer services specifically in Quebec.
  • You can ask your accountant or other colleagues.

Try to build a small list of possible companies.

Step #2: Evaluate the factoring companies

Once you have built a list of companies, you need to interview them. Develop a set of interview questions beforehand. The following list identifies the types of questions you should ask prospective factors.

How long have they been in business?

This question is important. The factoring industry has been growing rapidly. You want to work with a company that has been in business for a while – ideally five years or more.

If the company is new, inquire about their executives and their backgrounds. Focus on companies in which executives have been in the industry for a long time.

Do they have a local office?

Your best bet is to work with a factoring company that – at the very least – has an office in Canada. Some Canadian factoring companies also keep a local office in Quebec, often in Montreal.

If possible, avoid companies that don’t have a base of operations in Canada unless they have substantial experience in Quebec. There are important differences between how factoring works in Quebec and how it works in other provinces. For example, assets in most provinces are secured using the Personal Property Security Act (PPSA). Quebec, on the other hand, uses the hypothèque. Working with someone who is not aware of these differences causes delays and unnecessary problems.

In which industries do they specialize?

Most factoring companies describe themselves as generalists who can work in any industry. However, many have industry specializations. Ask if they have experience in your industry, and verify by asking some industry-specific questions. For example, a factor who claims to specialize in transportation should be familiar with concepts such as bill of lading or a freight bill.

In what size company do they specialize?

Most factoring companies advertise that they can work with a range of company sizes. However, factors often have a preferred financing  range. For example, they may advertise that they can finance companies that invoice up to C$5,000,000 per month. However, they may prefer to work with companies that invoice anywhere from C$250,000 to C$1.5 million per month.

Choose a company that is comfortable with your amount of invoicing.

What is their fee structure?

This question is fairly straightforward. Ask them to provide an estimate of costs and a proposed fee structure.

What are the due diligence costs?

Likewise, ask if they have due diligence costs or application fees. In some cases, these costs can be substantial. Be certain that you understand these costs.

Step #3: Compare their proposals

Once you have selected the factoring companies of interest, ask them to submit proposals. Comparing factoring proposals can be difficult, since factors often use different fee structures.

Focusing on the factoring rate alone is often a mistake. Instead, calculate the cost per dollar by dividing the factoring rate for similar periods by the advance rate.

You can find more information about transactions by reading “How Does Factoring Work?

Step #4: Make a selection

Once you have compared the factoring proposals, select the one that best fits your needs. Remember that price is not everything. Select a factoring company with whom you feel comfortable. If you are looking for a factoring company, consider working with us. If you would like a quote, call us toll-free at (877) 300 3258 or fill out this form.