Canadian AR (A/R) Finance Exposed – How Receivables Factoring Companies Invoice Finance

Updated: May 23, 2011

It's our observations that usually after Canadian business owners and financial managers understand how ar ( a/r ) finance works that they immediately focus in on trying to understand how they can achieve the benefits of receivables factoring , while at the same time reducing the cost . In years gone by the perception of factoring was that it was akin to the same negative perception we give to unscrupulous car dealers.

Bottom line? Things have changed, and invoice financing is powering, yes we say powering! thousands of companies all across Canada.

So, back to pricing - we're going to expose some of the key fundamentals around this type of business financing. In the case of how you are charged its actually more simply than you think, the pricing of your transactions revolves around the total time it takes to collect your invoices, the actual size of your approved facility, and thirdly, an d in our opinion as important, who you choose as an invoice finance partner !

So what actually is the best pricing you can achieve in Canada from an ar finance strategy point of view? Well, let's just say the spectrum is broad, with costs ranging from 5-6% per annum to 1-3% per month. Wow! Let's repeat that wow! That is clearly a huge range. So clients tend to ask where they fit into the pricing of their receivables factoring equation.

In Canada there are 2-3 tiers of firms which dominate invoice finance. They are a select group of U.S. and Canadian banks, some major independently owned Canadian and U.S. firms, and finally, hundreds of what ca be only termed as small ' mom and pop ' shops, providing facilities that might range in the 15-25k/month range .

Where does your firm fit. The truth around pricing is that once your firm has a volume of approx 250k per month you can start to achieve some significant invoice finance savings. Want to know another secret of the industry. It's simply that if lock into a facility for a year then you can actually achieve a price reduction, while open facilities tend to charge a bit more.

Our favorite and recommended type of facility is called C I D - It stands for confidential invoice discounting. What is it? It's simply a receivables factoring facility that allows you to bill and collect your own receivables. Your competitors might be using invoice finance but they are under the stringent control of their factor partner, who is intensely involved in the invoicing and notification to your customers of the financing you have arranged.

And, guess what, C I D financing, contrary to popular Rumour, is the same or less expensive that traditional U.S. and U.K. type factoring which have dominated the Canadian landscape for years,

AR Finance is at the end of the day a business financing facility that involves yourself and your partner firm. We recommend you deal with Canadian firms who understand the business landscape here and who ensure you have a facility that makes sense from a cost point of view. The right partner will also not ' nickel and dime ' you with respect to hidden fees, surcharges, etc. There isn't a day when we don't meet a client who ' thinks' he knows what they are paying for invoice financing, until, unfortunately, we expose the true pricing around his or her facility.

Featured Research
  • 2017 ERP Buyer's Guide

    Among all of the business software applications necessary for business operations, ERP is undoubtedly one of the most important. Making the wrong selection can have a disastrous impact on your accounting, manufacturing, and supply chain. With so much at stake, it is crucial to make a well-informed decision. more

  • 2017 Contact Center Software Trends

    Did you know that, according to Forbes, 86 percent of customers will pay more for a better customer experience? Customer satisfaction is always a worthy business pursuit, but to identify customer preferences and exceed expectations, you must keep pace with innovations in the technology your customers are using. more

  • How to Select Contact Center Software in 9 Steps

    Your choice of contact center software will affect the future success of your business. Don’t leave this important decision to chance. This guide provides nine actionable steps for the selection process. more

  • [Infographic] 15 Questions to Ask When Selecting a VoIP Provider

    Deciding which phone system is right for your business can be difficult. With our VoIP technology blueprint, discover the top 15 questions you should ask VoIP vendors before you make a buying decision. more

  • 2017 Business VoIP Buyer's Guide

    In 2017, more business will transition to a VoIP phone system. If you are among them—or if you’ll be upgrading an existing VoIP system—you need to learn about the latest technologies and market trends. more