Invoice Factoring in Canada 2025

Updated March 2025 · 10 min read

Invoice factoring is a form of business financing where you sell your outstanding invoices to a third party (a factoring company) at a discount in exchange for immediate cash. Rather than waiting 30, 60, or 90 days for customers to pay, you receive most of the invoice value within 24–48 hours. This guide explains how invoice factoring works in Canada, what it costs, and which businesses benefit most.

How Invoice Factoring Works

1. You complete work and issue an invoice to your customer (net 30, 60, or 90 days)
2. You submit the invoice to your factoring company
3. The factor advances you 70–90% of the invoice value, typically within 24–48 hours
4. The factor takes over collection — your customer pays the factor directly
5. Once the customer pays in full, the factor remits the remaining balance to you, minus their fee

For example: You factor a $50,000 invoice at an 80% advance rate with a 2.5% factoring fee. You receive $40,000 immediately. When your customer pays, the factor sends you the remaining $100 minus $1,250 (2.5% of $50,000) = $8,750. Your total received: $48,750. Your cost: $1,250 for cash flow acceleration.

Recourse vs. Non-Recourse Factoring

Recourse Factoring

The more common structure in Canada. If your customer doesn't pay (defaults or disputes the invoice), you must buy back the invoice from the factor. You bear the credit risk of your customer. Lower fees than non-recourse. Appropriate when you have strong, reliable customers with good payment histories.

Non-Recourse Factoring

The factor assumes the credit risk. If your customer goes bankrupt and doesn't pay, the factor absorbs the loss (not you). Higher fees to compensate for the additional risk. Appropriate for businesses with customers in volatile industries or when you want to fully transfer collection risk. Note: most non-recourse agreements only cover insolvency — if a customer simply refuses to pay due to a dispute, recourse may still apply.

Invoice Factoring Costs in Canada

Factoring fees in Canada are typically expressed as a percentage of the invoice face value per 30-day period. Common structures:

• Flat fee per invoice: 1.5–5% of invoice value regardless of how long it takes to collect
• Tiered fee: 1.5–2% for the first 30 days, 0.5–1% for each additional 30 days until collection
• Monthly factoring fee: A percentage applied monthly to the outstanding factored amount

Additional costs may include setup fees, minimum volume commitments, monthly service fees, wire transfer fees, and credit check fees on new customers. Always ask for the full fee schedule and calculate the effective annual rate before signing a factoring agreement.

Advance Rates

The advance rate — the percentage of the invoice value you receive upfront — varies based on:

• The creditworthiness of your customers (better customers = higher advance rates)
• Your industry (some industries are higher risk)
• Invoice terms (shorter terms typically get higher advances)
• Your factoring volume (higher volume = better rates)

Typical advance rates in Canada: 70–80% for lower-rated customers, 80–90% for strong commercial customers, up to 95% for government invoices.

Who Benefits Most from Invoice Factoring

Invoice factoring is most valuable for:

• Staffing and temp agencies: Must pay workers weekly while billing clients monthly — a chronic cash flow gap that factoring solves perfectly
• Trucking and freight: Fuel and driver costs are immediate; shipper payment is 30–45 days later
• Government contractors: Government clients are excellent credit risks but notoriously slow payers
• Manufacturing and wholesale: Large inventory purchases must be funded before clients pay
• Construction subcontractors: Cash flow gaps between completing work and receiving payment from general contractors
• New businesses: Too new to qualify for bank credit but have creditworthy commercial customers

Invoice Factoring vs. Bank Line of Credit

• Approval: Factoring is based on your customers' credit, not yours — easier to qualify
• Speed: Factoring can be set up in days; bank lines take weeks to months
• Cost: Bank lines are much cheaper (prime + 1–4% vs 15–40%+ annualized for factoring)
• Scalability: Factoring naturally scales with your revenue; bank lines have fixed limits
• Customer relationship: Factoring means your customers know you're using a factor; bank lines are invisible to customers

Top Invoice Factoring Companies in Canada

• Triumph Business Capital: Specializes in trucking and freight
• eCapital (formerly Accutrac Capital): Canadian-focused, multiple industries
• Riviera Finance: US-based with strong Canadian operations
• BDC: Offers AR-based credit facilities (not pure factoring but similar function)
• Export Development Canada (EDC): Accounts receivable insurance for export invoices
• Various regional factoring firms: Many provinces have local factoring companies specializing in specific industries

What to Look for in a Factoring Agreement

• All-in fee disclosure (not just the headline rate)
• Advance rate and when it's paid
• Recourse terms — exactly when does recourse kick in?
• Minimum volume commitments — are you locked into factoring a certain amount monthly?
• Termination terms — how do you exit if you find a better option?
• Notification requirements — does your customer need to be told about the factoring arrangement?