Invoice factoring, explained
Get paid for work you've already done.
A plain-language guide to invoice factoring for Canadian businesses.
01 / What factoring is
Selling an invoice, rather than borrowing against it.
Most Canadian businesses wait weeks or months to be paid. You finish the work, send the invoice, and the money sits in someone else's accounts payable queue while payroll, suppliers and rent stay on schedule.
Invoice factoring is one way to close that gap without adding debt. You sell an unpaid invoice to a funding provider at a discount. The provider pays you a portion of the invoice value up front, then collects the full amount from your customer by the due date. When the customer pays, the provider releases the remainder, less its fee.
The arrangement is a sale of an asset. That distinction matters. There is no principal to repay, no interest rate and no amortization schedule. What you agree to instead is a fee set by the provider, together with terms covering which invoices qualify, who contacts your customer, and what happens if the customer does not pay.
02 / How it works
Five steps, from invoice to balance.
You invoice your customer
You deliver the work and issue an invoice as usual. Nothing about the sale changes for your customer unless the provider notifies them.
You sell the invoice
You submit the invoice, along with proof of delivery or acceptance, to the provider, who verifies it with your customer.
The provider advances part of its value
The provider pays you an agreed portion of the invoice. The remaining balance is held back as a reserve.
Your customer pays the provider
Your customer pays the invoice by the original due date into an account the provider controls.
The balance is released less the fee
The provider releases the reserve, minus the fee it has charged. Its agreement sets out what happens if payment arrives late.
03 / Factoring types
Not every arrangement suits every business.
04 / Who uses it
Businesses that invoice other businesses.
Factoring tends to appear where work is delivered before payment, margins are thin, and one late customer can strain the next payroll. The trade you are in shapes how often that happens and what a provider will ask to see.
Freight, trades, production and services each carry their own payment rhythm.
05 / Factoring compared with a bank loan
Different instruments, different questions.
| On what basis | Invoice factoring | Bank loan or line of credit |
|---|---|---|
| What is reviewed | The invoices themselves and the credit of the customers who owe them. | Your business as a whole, including financial statements, trading history and security available. |
| Balance sheet effect | The invoice is sold, so it leaves receivables rather than appearing as new borrowing. | The amount borrowed appears as a liability until it is repaid. |
| Who collects | The provider, or your own office under a non-notification arrangement. | You do. Repayment is separate from how quickly your customers pay. |
| Flexibility | Capacity tends to move with your sales, since each invoice is assessed when you submit it. | The facility is fixed at an agreed amount, and drawing more requires a new approval. |
This comparison is qualitative and general. It describes no specific lender, provider or product, and it is not advice about which option suits your business.
06 / Across Canada
Regional economies, regional payment habits.
A manufacturer on the Highway 401 corridor and an oilfield services company outside Edmonton do not invoice the same way. These guides describe the business context in each place. They are not office listings.
07 / Questions to ask a provider
Ask before you sign anything.
These seven points decide how an arrangement behaves in a hard month. A provider that answers them in writing is easier to work with.
Recourse
If my customer does not pay, do I have to buy the invoice back, and by when?
Notification
Will my customer be told to pay your company, or do I keep collecting in my own name?
Minimums
Is there a minimum invoice size or monthly volume I must meet to stay in the arrangement?
Contract length
How long does the agreement run, and does it renew automatically if neither side acts?
Termination
What notice is required to leave, and are there charges if I exit before the term ends?
Fee method
How is the fee calculated: on the invoice value, on days outstanding, or on a flat basis?
Reserve release
When exactly is the reserve released, what is deducted, and how long after payment?
08 / FAQ
What people ask first.
Short answers to the questions that come up before a first conversation with a provider. The full list covers costs, eligibility and collections.
Read all questionsInvoice factoring is the sale of an unpaid invoice to a funding provider. The provider pays you a portion of the invoice value up front, collects the full amount from your customer by the due date, and releases the rest once the customer has paid, less its fee.
No. A loan is a debt you repay with interest. Factoring is a sale of an asset: the receivable leaves your books and the provider collects it. There is no principal to repay and no interest rate, only the fee the provider charges.
Providers generally buy invoices for completed, undisputed work owed by a business or public sector customer. Each provider applies its own criteria to invoice size, customer credit and the terms of your contract.
It depends on the arrangement. Under notification factoring your customer is told to pay the provider. Under non-notification factoring you keep collecting in your own name. Which of the two is available depends on the provider and on your customer.
Costs are set by the funding provider and depend on the arrangement, the invoices and your customers. There is no single national rate. Ask any provider to set out its fee in writing before you sign.
Not necessarily. Some arrangements cover selected invoices, which is called spot factoring. Others cover all or most of your sales ledger for a fixed term. Both are described in the factoring types section.
The provider's agreement sets out what happens. Under a recourse arrangement you may be asked to buy the invoice back. Under a non-recourse arrangement the provider may carry more of the credit risk, within conditions it sets.
Requirements differ between providers and between provinces, and some arrangements fall under business finance rules while others do not. Ask a provider directly about its licensing, its complaints process and which regulator applies to it.
09 / Request a consultation
Tell us what you are waiting on.
Describe your business and the invoices you carry. You will hear back by email.
Invoice Factoring Canada publishes general information about invoice factoring. It is not financial, legal or tax advice. Eligibility, terms and costs depend on the funding provider and your business.