How to Finance your Company in Canada with Invoice Factoring

One of the more common business problems involves dealing with slow paying clients. In most business to business transactions, a product or service is sold to a client who pays in 30 to 45 days. Offering this type trade credit is basically the norm, especially if you are selling to large companies. Basically, larger companies get better use of their cash by making their vendors wait to get paid. It's that simple.

This agreement works well if the vendor, in this case yourself, has the ability to wait 45 days to get paid. Some can. Many can't self finance, because they have obligations they have to meet. There is payroll. There are suppliers. There is rent and many other expenses that must be met.

This problem can be solved easily with business financing. However, everyone knows that business credit is tight and very hard to get. Most institutions are making conservative decisions. They need to see assets, solid financial statements and a good track record of running you business. This put business loans out of the reach of most business owners. But a business loan is not the only way to solve this particular problem, nor is it always the best solution.

A better solution may be to factor your invoices. Invoice factoring is a type of transaction whereby a factoring company gives you an advance for your 30 to 60 day invoices. This provides you with the funds to meet payroll and other critical expenses. The transaction is then settled once your client actually pays for the invoice.

One of the advantages of factoringis that it's easy to obtain, when compared to other products. Factoring companies secure their position by holding the invoice as collateral and they consider this your most important collateral. This an important feature because it provides financing to companies whose biggest - or only - asset is a solid client base. One additional benefit of invoice factoring is that the credit limit is dynamic and tied to your invoices. If you increase your billings to reputable clients your factoring line will usually be increased to match it.

Although invoice factoring is certainly not a cure all, it works very well in instances where the major business challenge is the inability to wait to get paid by clients.