Invoice Discounting / Factoring
- Manner in which to acquire flexible, quick, working capital
- Geared to small and mid size companies including start-ups with
- Involves the outright purchase of receivables whereby a company sells
its invoices (accounts receivable) for immediate cash.
- Invoice Discounting is one of the oldest forms of commercial finance.
Very common in such countries as USA, Britain, Italy,
- Invoice discounting does not require corporate or personal credit
strength. Can be used in conjunction with traditional lending.
- Is your growth outstripping your working capital?
- Are you negotiating a new bank loan or are expecting an injection of
equity capital and could use a “bridge” loan?
- Bank loan not a viable option. Lack of history or by choice.
- Bank line been called, revoked, curtailed.
- Use in conjunction with EDC to eliminate bad debt.
- Provides instant cash.
- Not a loan … “off balance sheet” financing.
- Improves your banking relationship thru improved financials.
- Improves “earnings”, ROCE, ROI.
- Credit focus is on the creditworthiness of your client vs. your balance
- Increases sales thru the granting of credit.
- Unlimited credit.
- Smoothes the business cycle of seasonal businesses.
- No long term commitments. Use on an as needed basis. Spot
- Hedging to protect profits.
- Finance an acquisition.
- Hire additional employees.
- Allows the outsourcing of the credit and A/R functions.
Understanding Invoice Discounting/Factoring:
- invoice discounting = factoring
- Advance: the portion of an invoice that a factor forwards to
the client. i.e. on an 85% advance basis $8,500 cash would
forwarded to a client within 24 hours on a $10,000 invoice.
- Spot Factoring: financing which is based on an individual or
specific invoice or invoices.
- Non-recourse: the factor assumes the entire burden of
collection and risk of bad-debt losses.
- Recourse: the factor will work the receivable until a
previously agreed upon date and if invoice remains unpaid will then
the receivable back to the client for resolution.
- Any company that generates commercial invoices collectible in 15-75
- Creditworthy clients.
- Profitable revenues.
- Individual invoice amounts $100-$1,500,000.
- Complete application (Evaluation form).
- Conference call and submit documentation ie A/R & A/P aging
reports, 1st pg of Articles of Incorporation.
- Term sheet is issued by factor within 3-8 business days. Term sheet
specifies legal obligations of both parties.
- Execute term sheet and provide requested supporting documentation.
- Submit customer orders for credit check and approval.
- Product produced, shipped and invoice generated.
- Customers are notified to remit directly to the factor.
- Invoice submitted to factor and customer acknowledges receipt of
product/service in good working order.
- Funds advanced within 24 hours. Advance amount as per term sheet.
- Upon payment of invoice, the difference between the advance and the
total invoice amount is forwarded to you less the factor’s fee.
- How long has factoring been around?
- The practice of factoring is a wide spread and well established
form of business financing dating back hundreds of years. Very
common in many countries:USA,Britain,Italy,France,Germany,
andJapan. Worldwide, factoring is a trillion dollar business but
fairly unknown inCanada.
- Is there any start-up or legal fees?
- Depends on the circumstances and rates but in general fees are
- Isn’t factoring expensive?
- Factoring is not a perfect fit fo r all companies all the time
but does have its time and place.
- The advance (70%-95%), fees (1%-5%/month) depend on a number of
factors: credit-worthiness of client, total volume, size of
facility, number of customers, number of invoices, risk, payment
terms, average invoice size, annual sales volume of customer
- ROI vs. lost opportunities … how will cash
generated thru factoring effect the bottom line?
- Bank fees: annual fees, admin fees, review
fees etc Actual bank line costs are closer to 20%.
- Take advantage of discounts from
- 2% net 10. Factoring costs are entirely
offset by customers who take advantage of the 2% discount
but not honour the 10 days.
- Non-recourse factoring completely
eliminates bad debts.
- If desired, factor performs the credit,
collections, A/R functions.
- Factoring/invoice discounting is NOT debt
and as such is “off balance sheet financing”.
- What will my customers think?
- Good chance that your customer is already remitting payment to
a factor … maybe even us!
- There are many reasons why companies take advantage of
factoring i.e. experiencing fast growth, wish to take advantage of
an opportunity, do not wish to go the equity route … all positive
- 80% of companies who take advantage of factoring do so for
- Means your company is healthy as a factor will not take on a
client that is on verge of disappearing. Shell Oil, IBM,
Georgia-Pacific, Mitel, Nestle and other large firms factor
- What are best invoices to factor?
- Invoices from creditworthy customers that are collectable in
- Are personal guarantees required?
- Usually but not in all cases.
- Will factoring help my company?
- Factoring can be very useful for businesses that wish to
expand, can’t get a bank loan or an increase on their bank line or
who wish not to incur debt.
- When can I expect to receive my advance after submitting approval
invoice to factor?
- What is the smallest invoice which you will factor?
- Will entertain invoices in the range of $100 to $1,500,000
- Is it required that we factor all of our A/R?
- What is the range of the total financing “facility” that you will fund?
- From as small as $5,000 per month to $1,500,000.
- Can I factor invoices generated to non-Canadian customers?
- Yes. Invoices from good quality customers located
throughoutCanadaandUnited States. Other international invoices
depending on the circumstances.
- What reports will I receive?
- Depends on your requirements which effects discount fee but in
general a report which indicates the invoices factored, advances
made, fees and cash received.
- Reports available on-line.
- From which industries will invoices be purchased?
- Too many to list: including but not limited to: technology
(hardware/software), office equipment, furniture, aerospace, food,
energy, plastics, printing, transportation, apparel, manufacturing,
industrial supply and automotive industries.
- Who buys our Accounts Receivable?
- Our sweet spot is $5,000 to $1,500,000 … if we cannot offer a
facility then we will “broker” to a partner.
- How to get started.
- Complete Application form and we will contact you to discuss
optimum solution for your circumstance.
SR&EDS (stand alone)
- A loan based on the filing of
Scientific Research & Experimental Development
- Range: $100k-1M, 70% advance of
the gross value (outside of ON min is $250k)
- Either a track record of
SR&ED filings or a recognized 3rd party preparer and a
2nd source of income.
- Security: GSA & personal
- Application at time of filing
SR&ED which is 6 mos from fiscal yr end (incl corp tax filing)
- Term sheet: 3-5 days.
Turnaround/closing: 10 working days
- Max months outstanding 6/8
months. Can be extended. Average is 4 months.
- Monthly fee 2-3%
ABOUT THE SR&ED
The Scientific Research and
Experimental Development (SR&ED) program is a federal
tax incentive program offered by the Canadian government to
recover from 28% up to 82% of qualifying
These incentives, received in the form of tax refunds or
tax credits, are meant to encourage Canadian
businesses of all sizes, and in all sectors to conduct
research and development (R&D) in Canada,
leading to new or improved products and technological
These R&D tax credits can be a
tremendous source of financial support for Canadian
companies. However, our experience has shown that many
companies, of all sizes and across different industries
have no knowledge of the program, how to apply the
program guidelines or defend a claim for their specific
- Refundable tax credit from 28% up to 82%
of qualifying expenditures.
- A Canadian-controlled private corporation
(CCPC) can earn an investment tax credit (ITC) of
35% up to the first $3 million of qualified
expenditures for SR&ED carried out in Canada, and 20% on
any excess amount.
- Other Canadian corporations, proprietorships, partnerships,
and trusts can earn an ITC of 20% of qualified
expenditures for SR&ED carried out in
- Additional provincial credits, ranging from 4.5% to 37.5%
depending on taxable income and province.
- An immediate deduction for all R&D related labour,
material, capital and certain overhead costs.
- Wages and salaries
- Sub-contractor expenditures
- Overhead costs
- Capital expenditures
- Equipment leases
NOTE: If you are interested in this Fed R&D ‘grant’ – please
inform and we will ‘connect the dots’ (intro you) to the largest