5 Best Factoring Companies in Canada

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Unpaid invoices are an inevitable part of running a business.  It can be very frustrating knowing that you are due income but not having the cash in the bank to use, whether this is to cover current costs, pay for some upcoming work, or to reinvest and grow your business. Releasing those locked-up funds early is exactly what Invoice factoring is for.

It can be hard to work out what company is best to use for your factoring so to help you out, we have compiled a list of who we consider to be the best factoring companies in Canada.

What is Factoring?

First, let’s just get a little more clarification around what invoice factoring is.

Simply put, invoice factoring is where your company ‘sells’ your unpaid invoices to a factor so that you can release the cash quickly.  It is a way for you to advance the funds your company is expecting (and can prove to be expecting with clear invoices).

You are selling your unpaid invoices at a discount in order to receive the revenue sooner.

Factors usually payout anywhere between 70% – 90% of the invoice value, at which point they become the beneficiary of the invoice.  They will chase and receive the full payment from your customers directly.  The difference in the amount they paid to you and the full amount of the invoice is their profit.

How does factoring work?

There are a lot of different factoring companies out there, including many banks that offer factoring services.

Some factors are industry-specific, and at the very least, most factors target specific companies based on the volume of business and amount per invoice.  It is worth doing some research into different factors to make sure they work with your industry and type of business.

The process of using a factor is fairly simple:

Once you choose your factor they will more than likely go through your client base to assess it for creditworthiness, and go through previous invoices and payment schedules to make sure they have paid in the past.

If they are happy with that then you will begin to negotiate over the rates for the factoring.  Usually, they will offer to pay you 85-90% of the face value of your invoice.

On top of that, you will also pay a factoring fee that can be anything up to 4.5% of the invoice amount usually.  This factoring fee you will have to pay every 30 days the invoice is unpaid, so be careful.  If your customers have a tendency to be a few months late with their payments this fee can add up!

The payment the factor advances to you won’t be the full amount.  It will usually be up to about 70%.  The rest is retained and only paid out once the invoice has been settled with them.

Let’s look at an example to make that a little clearer.

You have an invoice for $20,000 that you are wanting to release the funds from asap.

Your factoring company offers to pay 85% of the invoice value ($17,000), with a factoring fee of 2% every 30 days ($400).  The company will advance 70% of the deal to you.

This means that you receive $14,000 immediately.

The balance will be repaid once the invoice has been cleared by your customer, minus any factoring fees.

This means that you are due $2,600 at most when the invoice is paid (the last 15% at $3,000 minus the factoring fee of 2%).

Your customer takes two months to pay the invoice, however, so instead of a fee of $400, you have to pay $800 from the remaining amount (2% for every 30 days).

This means that you receive $2,200 when the invoice is paid for a total of $16,200.

What are the two types of factoring?

Recourse factoring is the most common.  This method sees the factor purchase your invoices, but if for any reason they are unable to collect the funds for the invoices then you will have to cover the invoice.

Non-recourse factoring on the other hand is when the factoring company takes on the full liability for the invoice.  So, if for any reason they were unable to reclaim the funds your company would not be liable for those funds.  This method usually comes with much higher fees as the factoring company is taking on more risk.

How to choose the right factoring company for you?

Your first step is to consider whether using a factor makes sense for your company at all?

Factoring works well for companies that tend to have larger invoices and larger customers. If your customers are primarily large companies making bulk orders, then factoring could very well make sense. 

If, however, your company sells individual items to customers then in all likelihood using a factor doesn’t make sense.

Let’s have a look at our top five factoring companies.

BlueVine has a long reputation as being one of the best invoice factoring companies available.  They are certainly one of the most popular with their low rates and fast decisions.

Their approval process usually takes around 24 hours, and their rates start at an incredibly reasonable 0.25% per week.  They offer factoring lines up to $5 million too.

You can control how many invoices and which ones they factor in, and all of their fees are completely transparent.

There are some eligibility criteria you will need to meet:

  • Have been in business for at least 3 months
  • Generate at least $10,000 in monthly revenue
  • Your company sells B2B
  • Have a personal FICO score of 530+

Paragon is a non-recourse invoice factoring company and is arguably one of the best.

Paragon tend to work a lot with government contractors, and they are great for start-ups and businesses with tax issues.

They don’t factor in your personal credit for their eligibility, but they do need a minimum of $30,000 in monthly sales.

They also offer working capital for government contracting and purchase order financing too.

altLINE is another factoring company with a great reputation.  Not least of all because of their low fees.

They are a division of the Southern Bank Company and as such is a direct source of funding.  This means they don’t need to charge the additional borrowing fees that others do.

There’s also no application fee, which is great, and they will pay up to 90%. Their rates start at 0.5% and they have a fast approval process too.

They most commonly work in the following industries:

  • Staffing
  • Distribution
  • Facility Services
  • Manufacturing
  • Consulting
  • Food and Beverage
  • Wholesale
  • Professional Services
  • Textile and Apparel
  • Oil and Gas
  • Janitorial Services

Though they are always happy to talk if your company operates in another industry.

Breakout Capital is great for newer or smaller businesses as they offer very flexible invoice factoring, specifically around payback schedules, which is great.

They also offer customized solutions for businesses that do not qualify for factoring from other companies through their “FactorAdvantage”.  This is why they are so good for start-ups.

You can also access short-term bridge loans too.

Their rates are a bit higher, however starting at 1.25% per month.

If you are looking for flexible monthly contracts then TCI Capital could be a great fit for you.  Their rates change month to month based on the volume of your invoices, so the more you do the cheaper the rate can be.

They also encourage you to talk to a member of their team before applying so they can help you find the best solution for your company, which is a nice touch.

You can also use the calculator tool on their website to give you a head start on working out your needs and how much they will cost.

They offer fast decisions and same-day funding when required too.

Invoice factoring can be a great asset to your company, help you grow more quickly, help unlock the cash in the short term, and keep your cash flow running smoothly. 

Taking your time to assess what you need and who might be the best fit for you is essential, and hopefully, this guide has helped on that journey.

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Kareena Maya is a freelance writer focused on the personal finance and travel spaces. He frequently writes about credit cards, banking, student loans, insurance, travel rewards and more. His work has been featured in publications such as Forbes Advisor, Bankrate, Credit Karma, Finance Buzz, The Ascent and Student Loan Planner.

Kareena Maya is a freelance writer focused on the personal finance and travel spaces. He frequently writes about credit cards, banking, student loans, insurance, travel rewards and more. His work has been featured in publications such as Forbes Advisor, Bankrate, Credit Karma, Finance Buzz, The Ascent and Student Loan Planner.