A Mississauga staffing agency invoiced a national client $240,000 in March and did not see the money until July. Payroll ran every second Friday the whole time.
Invoice factoring is the sale of your unpaid business invoices to a finance company at a discount. You receive most of the face value upfront, commonly 80% to 95%, and the balance once your customer pays, minus a fee that is normally quoted per 30 days. Factoring isn't a loan. You're selling an asset you already own, which moves the approval question away from your credit and onto your customer's.
That shift is why factoring turns up so often in trucking, staffing, construction supply and manufacturing, where the work is finished, the invoice is real, and the cash sits 60 days out. It's also why the product confuses people. Here is what the math looks like in Canada, what the paperwork does to your existing business financing, and when borrowing is simply the better move.
How invoice factoring works in Canada
Four steps, start to finish. The Business Development Bank of Canada describes factoring as selling your accounts receivable in exchange for immediate funds, and that is precisely what the paperwork does.
The 4-Step Factoring Flow
- You submit the invoice, and the factor confirms the work was delivered and that your customer accepts the amount. Verification is the real underwriting step.
- You receive the advance. Most Canadian factors advance 80% to 95% of face value, often within 24 to 48 hours once your account is set up.
- Your customer pays the factor. Under a notification agreement they get written notice that the receivable has been assigned.
- The reserve is released. Whatever was held back comes to you, less the fee.
Numbers make it concrete. Say you factor a $50,000 invoice at an 85% advance. You get $42,500 now and the factor holds $7,500. Your customer pays the full $50,000 on day 42, the factor deducts its fee (2% of face value, for illustration, so $1,000) and releases $6,500. Cash in your account, all in: $49,000.
Notification, and why your customer gets a letter
Ontario courts have treated a factoring agreement as creating a security interest, so the factor registers a financing statement against your business under the Personal Property Security Act. Your customer may keep paying you until they receive notice that the account has been assigned, which is why that notice goes out early. Owners dread this part. In practice, large accounts have been remitting to factors for decades and treat the letter as a change of banking details.
If a factor tells you verification is a formality, keep shopping. Verification is exactly where a sloppy invoice becomes a declined one.
What invoice factoring costs in 2026
Two numbers set the price: the advance rate and the discount fee. Canadian factors commonly advance 80% to 95% of face value and charge a fee for every 30 days an invoice stays open. Published market ranges run from roughly 1% to 5% per 30 days. Where you land depends on monthly volume, average invoice size, your customers' credit quality, your industry, and how much of your book sits with one account.
The number owners ask for, and the one they should
Almost everyone asks for the advance rate. Ask instead for the total cost on one sample invoice paid at 30, 45 and 60 days. A 90% advance with a fee that steps up weekly can cost more than an 85% advance at a flat fee when your customers run slow. Honestly, the headline advance rate is the least useful number in a factoring quote.
Recourse and non-recourse
Recourse factoring means you buy the invoice back if your customer never pays. Non-recourse moves that credit risk to the factor for a higher fee, and it usually covers insolvency only. A billing dispute stays yours either way. Read that clause before paying extra for protection you might not actually have.
How factoring compares to other working capital
| Product | How the cost is quoted | Whose credit matters most | Typical speed | Best fit |
|---|---|---|---|---|
| Invoice factoring | Discount fee per 30 days on invoice face value | Your customer's | 24 to 48 hours after setup | Delivered B2B or government invoices |
| Merchant cash advance | Factor rate on the advance, repaid from daily deposits | Your deposit history | Same or next business day in many cases | Card and deposit-heavy revenue |
| Business line of credit | Annual interest on the drawn balance | Yours and the business's | Days to weeks | Small, recurring cash gaps |
| Business term loan | Annual interest over a fixed term | Yours and the business's | Days to weeks | One-time purchases and projects |
One caution on vocabulary. A factoring discount fee and a merchant cash advance factor rate are different calculations, even though the word "factor" shows up in both.
Price a factoring line the way you price a supplier: on the full invoice, paid late.
Who qualifies, and what stalls a Canadian factoring deal
Approvals come down to four things. You invoice other businesses or government, the work is delivered, the invoice is undisputed, and your customer pays their bills. A thin credit file on your side is survivable here. A customer who pays at 90 days is a pricing question, not a decline.
What actually stops deals
- An existing bank general security agreement over receivables. The bank has to postpone its claim in writing before a factor can fund.
- Customer concentration. One account carrying 70% of your book tightens both pricing and the reserve.
- Arrears with the Canada Revenue Agency. Unremitted payroll source deductions and GST/HST sit under a deemed trust that can rank ahead of secured creditors, and factors check for it.
- Billing ahead of delivery. Progress invoices for work not yet performed rarely qualify.
- Paperwork that disagrees with itself. Purchase order, proof of delivery and invoice have to match.
Where these files actually die isn't credit. It is a PPSA search that surfaces a registration nobody mentioned on the application.
What to have ready
An aged accounts receivable listing, your customer list with payment terms, sample invoices with proof of delivery, recent business bank statements, and your incorporation documents. Selling a receivable also changes nothing about your sales tax. You still charge, collect and remit GST/HST on the original invoice.
Clean paperwork moves a factoring file faster than a better credit score ever will.
Factoring, or should you borrow instead?
Done right, factoring fixes timing. It doesn't fix margin. When your invoices are profitable and your customers are simply slow, the product covers the gap and grows as your sales grow. If the jobs are coming in under water, though, cheaper money just funds the same loss more efficiently.
When another product fits better
- You sell to consumers rather than businesses. There are no trade receivables to sell, so a line of credit or a merchant cash advance is the closer match.
- The money is for one lump purchase, equipment or an expansion. A term loan prices better across the life of the asset.
- Shortfalls are small, frequent and unpredictable. A revolving line costs less than factoring an entire ledger.
- Your receivables are pledged and the bank won't postpone. Then the question becomes how much your business can borrow on the strength of the same documents.
Solid Capital is a Canadian alternative lender built for owners the banks decline or under-serve. We read the whole file, bank statements, revenue history, customer quality and business context, instead of stopping at a credit score, and a Canadian advisor reviews every application personally. If receivables are your bottleneck, start an application. It takes about five minutes and there is no impact to your credit to apply, or browse more on Canadian business financing first.
Factoring isn't cheap money, and it was never designed to be. It's fast money against work you've already done. For a business turning down orders because payroll lands before the cheque does, that trade usually pays for itself. Run the total cost at 45 days. Then decide.
Frequently Asked Questions
Is invoice factoring a loan?
No. Factoring is the sale of a receivable you already own, so you aren't taking on term debt. The factor does register a financing statement against your accounts receivable under provincial personal property security legislation, which other lenders can see.
How much does invoice factoring cost in Canada?
Pricing has two moving parts: an advance rate that commonly runs 80% to 95% of the invoice, and a discount fee that market sources place around 1% to 5% for every 30 days the invoice is outstanding. Volume, invoice size, your industry and your customers' credit all move the number. Ask each factor for the total cost on a sample invoice paid at 30, 45 and 60 days.
Will my customers know I am factoring my invoices?
Under a notification agreement, yes. Your customer receives written notice that the invoice has been assigned and pays the factor directly. Non-notification arrangements exist but are less common and usually reserved for larger, stronger files.
Does invoice factoring affect my credit score?
The factoring decision leans mostly on your customers' credit rather than yours. The factor's PPSA registration is public and visible to other lenders, though it is not a consumer credit score item. Applying with Solid Capital has no impact to your credit.
How fast can I get funded through factoring?
Setup usually takes a few business days for verification, the PPSA search and any bank postponement. After that, funding on verified invoices often lands within 24 to 48 hours, for approved files.
Can I factor a single invoice instead of my whole ledger?
Yes, that is called spot factoring. Expect to pay more per invoice than a whole-ledger arrangement, because the factor spreads its fixed costs over far less volume.
Can I factor invoices if my business owes CRA?
Sometimes, particularly where there is a payment arrangement in place and the balance is not payroll source deductions or GST/HST. Those amounts fall under a deemed trust that can outrank a secured creditor, so most factors want them addressed before funding.
