Factoring is a form of business financing that has been gaining popularity in Canada. It helps companies that have cash flow problems because their clients pay their invoices in 30 – 60 days.
It’s not that their clients are bad payers – far from it. It’s just that many customers demand net-30 to net-60 days payment terms as a condition of doing business. These terms can create problems for companies who can’t afford to wait and need the money sooner to pay for business expenses.
How does factoring work?
Factoring provides you with working capital by financing your invoices from slow-paying clients. Invoices are financed in two instalments: the advance and the rebate.
The advance is provided soon after you submit the invoice for financing. It covers 70% – 90% of the gross value of the invoice. The advance percentage varies by industry.
The rebate covers the remaining funds and is deposited to your account once your customer pays the invoice in full, on their usual schedule. The finance fee is usually deducted from the rebate.
Most clients use this solution on an ongoing basis because it provides them with predictable revenues. They can use the increased stability and working capital to focus on growing the business.
For more information, read “What is Factoring?”
Factoring provides a number of benefits for your company. Some of the more important benefits include:
- Provides immediate working capital
- Allows you to offer net 30 terms to clients
- The line is flexible and grows with your business
- Is easy to obtain
- Can be set up in days
Who is a good candidate for factoring?
Factoring usually helps you if you meet these three criteria:
- You work with creditworthy commercial clients
- You give them 30 to 90 days to pay an invoice
- You have cash flow problems because they pay slowly
If you don’t meet these three criteria, it’s unlikely that financing invoices will help you. For more information, read “Is Factoring Right for My Company?”
Who can qualify for factoring?
Qualifying for factoring financing is relatively simple. It can be used by small and growing businesses alike. Companies that use factoring must:
- Operate as a provincial or federal company
- Sell products or services to commercial clients
- Work with clients with good commercial credit
- Give its customers net 30 – net 60 terms
- Have good profit margins
- Be free of legal or tax problems
How much does factoring cost?
The cost of this type of financing varies based on the amount of financing you need, the credit quality of your invoices, and your industry. Rates average from 1.5% to 3.5% per 30 days.
Get an instant quote
We are a leading factoring company and can offer you competitive terms. For more information, get an online quote or call us toll-free at (877) 300 3258.