What Is Invoice Factoring

Defining Invoice Factoring

Invoice factoring is a type of financing that allows businesses to sell their unpaid invoices (accounts receivable) to a factoring company in exchange for immediate cash.

Instead of waiting 30, 60, or even 90 days for customers to pay, you can access most of that money upfront. The factoring company advances a percentage of the invoice value, then collects directly from your customers.

At Mehmi Financial Group, we provide tailored factoring solutions for Canadian businesses struggling with cash flow due to slow-paying clients.

How Invoice Factoring Works

Here’s a simple breakdown:

1. Issue an Invoice – Your business delivers goods or services and sends an invoice to the customer.
   
   
2. Sell the Invoice – You sell the invoice to a factoring company at a discount.
   
   
3. Get an Advance – The factoring company pays you an advance (usually 70–90% of the invoice value).
   
   
4. Customer Pays – The factoring company collects the full invoice from your customer.
   
   
5. Final Settlement – Once collected, you receive the remaining balance minus the factoring fee.
   
   

This process converts accounts receivable into immediate working capital, giving your business breathing room.

Key Benefits of Invoice Factoring

• Faster Cash Flow – Access money tied up in receivables almost immediately.
  
  
• Improved Liquidity – Cover payroll, supplier payments, or operational costs without taking on new debt.
  
  
• Growth Potential – Take on bigger contracts without worrying about payment delays.
  
  
• Credit Flexibility – Approval depends more on your customers’ payment strength than your own credit score.
  
  

It’s especially valuable for businesses in industries where long invoice cycles are the norm, like transportation, construction, and wholesale.

Industries That Rely on Invoice Factoring

Factoring is popular in sectors where extended payment terms can choke cash flow:

• Trucking & Freight – See our transportation financing.
  
  
• Construction & Contractors – Long project timelines make construction financing and factoring essential.
  
  
• Manufacturing & Wholesale – Suppliers often wait months to get paid by distributors.
  
  
• Farming & Agriculture – Seasonal production means invoices can pile up.‍

• Small Business Services – B2B service providers often face 30–90 day receivable cycles.

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Case Study: Transportation Company Using Factoring

A small fleet operator in Ontario was struggling with fuel and payroll costs due to clients paying invoices in 60 days. By using freight invoice factoring, they received 85% of each invoice within 24 hours.

This immediate cash allowed them to fuel trucks, pay drivers on time, and expand routes. Without factoring, they would have been forced to decline new contracts.

Risks and Considerations

While invoice factoring is powerful, there are things to keep in mind:

• Cost: Factoring fees are usually higher than traditional bank loans.
  
  
• Customer Impact: Since the factor collects directly, customers may know you’re using factoring.
  
  
• Not for Every Invoice: Some customers or invoices may not qualify.
  
  

That said, for many SMEs, the tradeoff is worth it when it comes to survival and growth.

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FAQ: Invoice Factoring

1. What does invoice factoring mean in simple terms?
It means selling your unpaid invoices to a third party for quick cash.

2. How fast can I get paid with factoring?
Often within 24–48 hours of submitting invoices.

3. Is invoice factoring a loan?
No. It’s a sale of receivables, so no new debt is created.

4. What industries benefit most?
Transportation, construction, manufacturing, agriculture, and service-based B2B companies.

5. How much do factoring companies advance?
Typically 70–90% of invoice value upfront.

6. Can startups use factoring?
Yes, if they have customers with strong payment histories.

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Final Thoughts

Invoice factoring is an effective solution for Canadian businesses that need immediate cash flow without taking on new debt. By selling invoices, you can stabilize operations, fund growth, and avoid being trapped by long payment terms.

At Mehmi Financial Group, our invoice & freight factoring programs are tailored to Canadian SMEs across trucking, construction, and other industries.

Want to estimate costs and terms? Try our financing calculator or contact us today.