Invoice Factoring in Canada

Invoice factoring for businesses in Canada

What is invoice factoring?

Factoring is a transaction where a business sells its invoices to an invoice factoring company to gain access to the cash tied up in outstanding accounts receivables. These invoices or receivables are removed from your books and are added to the factoring company’s balance sheet at their fair value.

The factoring company is purchasing these accounts receivable at a discount and then waiting on your customers to pay the invoice, whether that is 30, 60 or 90 days later.

The discount amount depends on a number of different things, such as:
  • The dollar amounts of the invoices you are selling;
  • How long it takes for your clients to pay;
  • How credit-worthy your customers are; and,
  • Which factoring company you choose, this rate can vary from under 1% of the invoice value to 3 or 4%.

    How does invoice factoring work in Canada?

    Aside from some minor differences in the contract, invoice factoring as a solution essentially works the same as in most other countries including the United States.

    Here is an example of how a transaction may work;

    Note: All advance rates and discount rates or fees are agreed upon while being set up.

    Step 1: The seller submits their invoices to the factoring company to receive 80% to 95% of the amount of the factored invoices the same or next day. For example, if you sell $500,000 worth of accounts receivables and get a 90% advance, you will receive $450,000.

    Step 2: The invoice factoring company holds the remaining 10% or $50,000 as security until the payment of the invoice or invoices has been received.

    Step 3: The factoring company collects payment over the next 30 to 90 day period depending on your clients’ payment terms.

    Step 4: Once the payment has been received, the factor pays you, (the seller of the invoices), the remaining 10% less the factoring fee, which typically runs 1% to 3% of the total invoice value.

    Why use invoice factoring for my Canadian company?

    The reason why so many companies utilize a finance facility like this is the following:

  • Factoring greatly improves cash flow which can fuel growth, in turn a companies’ bottom line;
  • It gives potential for unlimited growth, while paying a small fee to do so.
  • The business owner does not take on any debt
  • It builds your business credit and gives you the ability to make payroll and take care of obligations on time.

    How do I get set up with a factoring company in Canada?

    Getting set up with a factoring company generally takes 7-10 days. It involves filling out an application, submitting some documentation, agreeing on terms, signing a contract and submitting invoices for funding.

    Reach out to Meritus Capital today! We can get you set up quickly and get you the funding you need!

    If you have any questions or want to discuss how Meritus can help provide invoice factoring for your Canadian business, contact us at 877-648-3709 or complete the contact form.

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