Quick answer: Factoring converts your unpaid B2B or government invoices into immediate cash . You submit eligible invoices, receive an advance now, and get the reserve (minus fees) when your customer pays.
What factoring is (plain English)
Factoring converts your unpaid B2B or government invoices into immediate cash. You submit eligible invoices, receive an advance now, and get the reserve (minus fees) when your customer pays. Approval leans on your customers’ credit and clean documentation, which is why startups and fast-growing firms often qualify. Learn more: Invoice & Freight Factoring.
BDC’s factoring guide distinguishes selling receivables from borrowing money.
“Factoring is not a loan”
That distinction matters when comparing factoring with a credit line: review invoice eligibility, collection responsibilities, fees and who bears non-payment risk.
How it works in practice
- Submit issued invoices for completed work and backup (POs, PODs/BOLs, sign-offs).
- Get an advance; your customer is notified to remit to the factor.
- When the customer pays, you receive the reserve minus fees.
Common structures: recourse (lower cost; you replace slow invoices) or non-recourse (higher cost; certain credit-nonpayment risks shift to the factor).
When factoring beats borrowing
- Cash timing hurts execution: You need fuel, materials, payroll, or deposits before customers pay.
- You’re growing fast: Facility size scales with AR volume.
File is thin or new: Decisions centre on debtor quality and invoice hygiene. If your need is a one-time push (e.g., launch inventory), a Working Capital Loan may be simpler. For recurring dips and spikes, anchor with a Business Line of Credit.
| Tool | Best Use | How You Pay | Qualifying Focus | Where to Start |
|---|---|---|---|---|
| Factoring | Slow-paying B2B/Gov invoices | Fee netted from collections | Debtors’ credit & documentation | Factoring |
| Line of Credit | Reusable cushion for cycles | Interest on drawn balance | Bank statements/financials | Business LOC |
| Working Capital Loan | Project mobilization, inventory | Fixed term payments | Cash flow coverage | Working Capital |
| Term/Secured Loan | Larger, longer initiatives | Amortized schedule | Collateral & financials | Term · Secured |
Costs—and what drives them
Your total cost depends on: debtor strength, days outstanding, dispute history, invoice size/volume, and concentration (one customer dominating AR). Tight operations—accurate pricing, on-time PODs/BOLs, and clear milestones—lower the effective fee. If you later qualify for cheaper capital, we can step down via Business Refinancing or a Term/Secured facility.
What you’ll need for a fast decision
- AR aging (detail), customer list, and any concentrations
- Sample invoices + backup (POs, signed delivery, milestone sign-offs)
- 3–6 months business bank statements (PDFs)
- Master service agreements (confirm assignability of receivables)
- Basic corporate details and a void cheque
Approval and funding timelines vary by lender, application completeness, and required conditions. Send documents via Contact Us.
Pair factoring with the right tools
- Equipment coming next? Finance assets with Equipment Loans or Leases and keep factoring focused on AR.
- Asset-heavy and scaling? Consider Asset-Based Lending or an Equipment Line of Credit.
- Own gear outright? Unlock equity for growth with Refinancing & Sale-Leaseback.
Mehmi also sells equipment directly—browse inventory and bundle purchase + financing end-to-end.
Industry snapshots (Canada)
- Transportation & Trucking: Freight factoring smooths fuel, tires, and driver settlements while you add units through Equipment Financing. See Transportation & Trucking.
- Manufacturing & Wholesale: Long terms and big POs fit factoring; layer Asset-Based Lending on AR/inventory. See Manufacturing & Wholesale.
- Construction & Contractors: Factor clean, completed milestones; finance iron separately. See Construction & Contractors.
Case study (realistic)
A GTA flatbed carrier faced Net-45/60 from mills while opening two new lanes. We arranged Invoice & Freight Factoring for key shippers and a small Line of Credit for weekend fuel spikes. Two months later, they added a used tractor via Equipment Loans. Result: on-time payroll, no missed loads, and margin lift from early-pay supplier discounts.
FAQ
Is factoring a loan?
No. You’re selling invoices; fees are deducted from collections. If you prefer fixed repayments, compare a Working Capital Loan.
Will my customers know?
Typically yes, via a short notice of assignment so they remit to the factor—standard in B2B/Gov settings.
Can I factor only some customers?
Often yes—approve specific debtors and submit invoices selectively, subject to minimums.
Recourse or non-recourse—how do I choose?
Recourse is cheaper but you replace slow invoices; non-recourse shifts certain credit-nonpayment risks at a higher fee.
What if my AR is already pledged to a bank?
We coordinate a PPSA subordination or carve-out, or suggest an alternative like Asset-Based Lending.
How big can the facility be?
It scales with AR quality and volume. Share statements and AR aging via Contact Us; model cash-flow coverage in the calculator.
Ready to convert invoices into growth fuel? Feel free to contact our credit analysts through Contact Us, or map payments in the calculator.
Are you looking for a truck? Look at our used inventory.
Authoritative references
- Innovation, Science and Economic Development Canada — Canada Small Business Financing Program:
The Canada Small Business Financing Program makes it easier for small businesses to get loans from financial institutions by sharing the risk with lenders.
Program eligibility, lender criteria, tax treatment, and product terms can change. Verify current official guidance and final financing documents before making a decision.