What are typical factoring rates in Canada?
Many small businesses in Canada become victims of their own success. They sell products or services to their customers, but as they often experience late payments. This causes a struggle with cash flow and many companies have to slow down or go out of business.
Invoice factoring is a simple way for businesses to transform outstanding invoices into immediate working capital. A business can increase their cash flow by selling their accounts receivables to a factoring company at a discount.
The factoring company will charge a percentage discount known as a factoring rate for their services. In Canada, typical factoring rates can range from 1.5% to 6% per 30 days. In this article, you will learn: the variables that affect factoring rates, differences between factoring cost and invoice factoring rate, additional fees, and factoring rates in Ontario
For more information about invoice factoring: What It Is and How It Can Help to Grow Your Business
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What influences your factoring rate?
When you apply for invoice factoring, the factoring company will look at a number of things to decide what rate to assign your business. The following are the main variables that will affect your factoring rate:
- Volume of invoices
Your monthly factored sales volume is a major determinant of your invoice factoring rate. As a general rule, the greater the volume the lower the rate.
- Average invoice size
Closely related to the volume of invoices is the average invoice size. Larger invoices will qualify for lower factoring rates.
- Payment schedule of customers
Factoring companies have to take into account the time value of money. This refers to the length of time an invoice remains outstanding. The longer it takes for your customer to pay, the higher the factoring fee will be.
- Length of factoring agreement
A factoring agreement or contract term can vary from month-to-month to 1 year or more. Longer agreement terms will have lower factoring rates.
- The risk associated with your industry
Businesses in industries that are more unstable and risky will be assigned higher rates. High-risk industries include construction and hospitality.
- The reliability of your customer’s credit
The factoring company will check the quality and creditworthiness of your customer base. You need to have reliable customers with good credit to qualify for low rates.
Factoring cost vs invoice factoring rate
Though similar, the terms “factoring cost” and “invoice factoring rate” have different meanings and should not be used interchangeably. Here is a comparison between the 2 terms:
|Factoring Cost||Invoice Factoring Rate|
|The actual cost of factoring||The cost of financing|
|Includes all cost to obtain invoice financing such as:
lockbox maintenance fee;
invoice processing fee;
monthly minimum volume fee;
and any other fee that factoring company charges to obtain the funds.
|Refers to the fee that a factoring company charges for providing its services.|
|Determines the total cost per dollar||Stated as a percentage of the invoice’s face value|
|Extra fees are taken into account||Does not include extra fees|
Is there any extra fee?
Depending on the factoring company, there can be extra fees charged on top of the factoring rate. Any additional fees will add to the total cost of factoring for your business. The most common fees include:
- Due diligence/Set up fee:
Upfront costs for setting up a new account.
- Lockbox maintenance fee:
Some factoring companies may charge you to maintain a lockbox—a designated account for your customers to pay their invoices.
- Collection or overdue fees:
Charged for the administration costs of collecting past due payments. Some factoring companies will even charge a flat fee for invoices that are past due.
- Monthly minimum volume fee:
If you are required to sell a certain amount of invoices per month, a fee is charged when you do not meet the monthly minimum target.
- Credit check fees:
Costs for performing background credit checks on you and your customers.
- Termination fee:
Charged for terminating a factoring agreement or contract before the end date.
Often times, businesses find themselves facing unexpected fees when they don’t read the fine print in their factoring agreement or contract. Find out more: How to Avoid 12 Common Invoice Factoring Mistakes
Factoring rates comparison
Many businesses in various industries have successfully used invoice factoring to overcome slow invoice payments and improve cash flow. On average, factoring rates in Canada can range from as low as 1.5% to as high as 6% or more per 30 days period. Growth Capital is Ontario’s top-rated factoring service, providing factoring solutions to businesses of all sizes. We offer competitively priced factoring plans with low interest rates, flexible terms, and on-time payment. Our factoring service fee depends on the variables stated above as well as the needs and circumstances of each individual client. We can create fully customizable factoring plans to fit your business. Our factoring rates and fees are transparent. There are no additional hidden fees and no long-term commitment requirements.
Are you looking for an invoice factoring service?
Invoice factoring can be the right cash flow solution to ensure your business’s success. If you’ve decided to leverage your account receivables and factor your invoices, the next step is to find an invoice factoring service. It is crucial to work with a factoring company that understands your needs. Growth Capital delivers effective factoring solutions to help all kinds of businesses achieve financial stability. We specialize in 6 major industries: transportation, wholesale, medical, real estate, staffing, and construction. At Growth Capital, we understand how important it is to have sufficient working capital to meet financial obligations and to reach growth goals. When we finance your outstanding invoices, we give you access to funds without any delay. Our knowledgeable team of experts will support you through the whole process. We make sure to manage your invoices professionally and provide complete cost transparency.
Why wait to get paid? Factoring your invoices with Growth Capital is an easy way to manage your cash flow. Get an instant quote