How to Finance a Software Services Company

Most software services and technology companies that work with commercial clients have to offer payment terms. Consequently, the company must wait 30 to 60 days after invoicing to get paid. Most large commercial clients demand terms as a condition of doing business, leaving little room for negotiation. However, these terms can create financial problems for small companies that don’t have the resources to wait for payment.

The challenge of paying staff

Most software services companies and development have high payroll liabilities, since technology staff often command high wages. And the pressure to meet payroll is constant. However, few companies consider their cash flow when accepting a contract. As a result, they end up with financial problems. Basically, their funds are tied to slow-paying receivables.

Bank financing is not an option

A line of credit, or similar product, could easily solve this problem. However, bank financing is not an option for small companies that don’t have a long track record or substantial assets. Banks in Canada have stringent requirements that make qualification difficult for companies with few assets or no collateral. However, an alternative option – without onerous qualification requirements – can be used to solve this cash flow problem.

Finance your invoices

You can solve this common financial problem and improve your cash flow by using receivables financing. Basically, you finance your invoices through a factoring company. They provide an advance, which gives gives you the funds you need to cover important business expenses, such as payroll.

The transaction concludes once your customer pays the invoice on their regular schedule. Most invoices are factored using two instalment payments: the advance and the rebate.

The advance – instalment #1

The advanced is sent to your company by bank wire as soon as the work has been completed and invoiced. The factor often verifies the invoice prior to funding. The advance usually covers 80% of the gross value of the invoice, though this amount varies based on the risk profile of the transaction.

The rebate – instalment #2

The rebate is the second instalment and covers the 20% that was not advanced initially. The funds are sent by bank transfer once your client has paid the invoice in full on their regular schedule. The financing fee is often deducted from this payment.

For more information, please read “What is accounts receivable factoring?


Using a factoring financing solution has a number of advantages over other products. The most important advantage is factoring’s flexibility. The line can grow and adapt to your sales, as long as your transactions qualify for financing. This flexibility makes factoring an ideal solution for companies that are growing.

Also, the line can be deployed fairly quickly. The underwriting process takes a couple of days, and the line can be put to its initial use in five to ten business days. Subsequent transactions can happen in as little as one business day.


Qualifying for factoring in Canada is comparatively simple, as they don’t have the onerous requirements of large financial institutions. The most important requirement is that your commercial clients have good credit, since their invoices secure the transaction.

Also, your invoices should not be encumbered or pledged as collateral for a loan or line of credit. Lastly, your company should not have serious tax or legal problems.


The cost of a factoring facility varies based on the credit quality of your clients, the volume of invoices you want to finance, and the risk profile of your accounts receivable. In general, rates range from 1.5% to 3% per every 30 days.

Get more information

We are a leading provider of factoring in Canada and can provide you with high advances at low rates. For information, get an online quote or call (877) 300 3258 to speak with an expert.