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7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer INVOICE FACTORING  solutions that solve the issue of cash flow and working capital  – Save time and focus on profits and business opportunities

Understanding Invoice Factoring   

Introduction 

Thousands of firms in Canada are currently using the factor finance solution. Many consider this form of financing, but often they are also not sure as to the rate they are paying and how that rate is calculated. Hint - it's not an interest rate!

How Does Invoice Factoring Work?  

Invoice factoring is a liquidity solution for businesses wrestling with the delay between issuing invoices and receiving payments. Companies can finance/cash flow  their accounts receivable to a third party at a discount to gain immediate capital -

This bridges the cash flow gap, ensuring operations proceed without interruption. By transforming invoices into working capital, invoice factoring assists businesses in combating the unpredictable flow of cash availability, thus helping with growth and financial stability in the competitive market landscape.

Unlike bank A/R financing, which is typically part of your bank business line of credit the factoring solution is in effect the sale of your receivables as a part of the financing. That is one of the advantages of invoice factoring, its non-bank financing with higher advance rates.

Companies use invoice factoring as a form of business finance when they cannot obtain traditional financing. They are growing and need the valuable cash flow that comes from a factoring facility.

Unraveling the Complexity of Pricing in Factoring  

What then are the factors that determine A/R pricing when it's non-bank in nature? First of all, note carefully that the cost of factoring is a discount on your receivable sale to the commercial finance firm funding your facility. So it's not a loan per se, nor is it a credit line in the true sense of the word.

Factors that will determine your 'buy rate' are the size of the facility, the volume of invoices you have, and the general credit quality of your clients. Also, there are several commercial lenders and it's important to work with the right firm - Some are local, some are small, some are very large, and some are non-Canadian but do business in Canada.

Key Takeaways  

Conclusion

Another key factor in factor receivables finance is your advance rate. Typically you get immediately 90% of your invoice, the balance is held back until your client pays.

When it comes to the question' How much does invoice factoring cost '  Larger facilities in Canada tend to be very competitively priced and solid facilities can be arranged in the 1 to 1.5% discount rate.

Commercial factoring companies also might have some miscellaneous fees associated with your facility, as do the banks themselves.

So the best advice on accounts receivable financing? So whether it's a bank facility or an alternative solution, call 7 Park Avenue Financial,  a trusted, credible and experienced Canadian business financing advisor.

FAQ: FREQUENTLY ASKED QUESTIONS /  PEOPLE ALSO ASK / MORE INFORMATION 

How does invoice factoring improve cash flow for my business?

By selling your outstanding invoices to a factoring company, you receive immediate cash, thus eliminating the usual wait for customer payments.

Can invoice factoring help my business grow?

Yes, by providing immediate access to working capital, it supports investment in growth opportunities without straining your current resources.

What types of businesses benefit the most from invoice factoring?

Businesses in industries with long invoice payment terms, such as manufacturing, wholesale, and services, see significant benefits.

Is invoice factoring a loan?

No, it's an advance on your invoices. Unlike loans, it doesn't create debt on your balance sheet, making it a financially healthy option. Invoice factoring may be a strong alternative for SME small business owners thos of medium size companies  who can't access or qualify for bank financing and who are prepared to weigh the pros and cons of this type of financing for access to cash flow.

How quickly can business owners access funds through invoice factoring?

Typically, businesses can access funds in their business bank account within 24 to 48 hours after the invoices are sold to the factoring company. The factoring company pays your business as soon as you submit an invoice go goods or services delivered to your commercial or government clients. To qualify for invoice financing your customers must be generally creditworthy.

What is the difference between invoice factoring and invoice discounting?

Invoicing factoring involves selling your invoices to a third party, while invoice discounting allows you to borrow against them without selling.

Do I lose control over my invoices with factoring?

Not necessarily. Some factoring services allow you to maintain customer communication and collections, known as "non-notification" factoring. Any invoice less than 90 days old can be financed under the invoice factoring process. Most customers no longer adhere to 30 days terms as business owners are aware!

How do I choose the right factoring company?

Consider their industry expertise, check fees and the overall fee structure, contract terms, and whether they offer recourse or non-recourse factoring when it comes to financing slow paying customers

How does invoice factoring differ from traditional bank loans?

Invoice factoring companies provide immediate cash based on sales not yet paid for, without adding debt, unlike bank loans or business credit card that involve interest and repayment terms. It could be said factoring is a type of ' line of credit '. Factoring companies charge a  ' fee ' versus an interest rate when it comes to assessing factoring costs.

What is the significance of recourse invoice factoring vs non-recourse factoring/invoice financing?

In recourse factoring, you must buy back unpaid invoices. Non-recourse factoring offers greater risk protection, as the factor assumes the credit risk.

How does the creditworthiness of my customers affect invoice factoring?

Factors assess your customers' credit, not yours, to determine funding. Strong customer creditworthiness leads to better financing terms and rates.