Invoice Factoring in Canada: How It Works, What It Costs and Who It Suits
How invoice factoring works for Canadian businesses, what the fees look like and which companies benefit most.
Invoice factoring lets a Canadian business sell its unpaid B2B invoices to a factoring company in exchange for immediate cash. The factor advances most of each invoice’s value up front, then collects from your customer on the original payment terms and remits the balance minus a fee. It is not a loan: no debt goes on your balance sheet, no monthly repayments come out of your account, and the amount you can access grows as your sales grow.
Key takeaways
- Factoring converts outstanding invoices into working capital within days, without adding debt to your balance sheet.
- Approval depends mainly on your customers’ creditworthiness, so newer and fast-growing companies that a bank might decline can still qualify.
- Costs are structured as a percentage of each invoice’s face value rather than an interest rate, so comparing factoring to a loan means converting both to the same basis.
- Most Canadian factoring facilities are recourse, meaning your business absorbs the loss if a customer fails to pay.
- Canada’s factoring market grew 20% in 2025, reflecting broad demand from businesses managing long payment cycles.
| Item | Detail |
|---|---|
| What it is | Sale of unpaid B2B invoices to a factor for immediate cash |
| Who qualifies | Businesses invoicing creditworthy commercial or government customers |
| Approval basis | Your customers’ credit history and payment patterns |
| Funding speed | As fast as 48 hours |
| Typical invoice terms factored | net-30, net-60 or net-90 |
| Repayment | None; the factor collects directly from your customer |
How invoice factoring works
Three parties are involved: your business, your customer and the factoring company.
- You deliver work and invoice your customer. The invoice carries standard payment terms, commonly net-30, net-60 or net-90.
- You submit the invoice to the factor. The factoring company reviews the invoice and checks your customer’s credit. Once approved, it advances the majority of the invoice value to your bank account.
- Your customer pays the factor. When the invoice comes due, your customer pays the factoring company directly (or, in some arrangements, still pays you and you forward the payment). The factor then releases the holdback to you, minus its fee.
The holdback is the portion of the invoice the factor keeps in reserve until your customer pays. It protects the factor against short-pays, disputes or returns. Once the customer settles the full amount, the holdback comes back to you less the factoring fee.
What factoring costs
Factoring fees work differently from loan interest. A bank loan charges an annual percentage on a declining balance. A factoring fee is calculated as a percentage of the full invoice’s face value, charged for each period the invoice stays outstanding. Periods are usually quoted in monthly or biweekly increments.
What drives the fee:
- Your customers’ credit profiles. Stronger customers with reliable payment histories mean lower risk and a lower fee.
- Invoice volume. Higher monthly volumes often qualify for reduced per-invoice rates.
- How long customers take to pay. The longer the outstanding period, the more the fee accumulates.
- Industry. Some sectors carry higher default rates and attract higher fees.
- Recourse or non-recourse terms. Non-recourse facilities cost more because the factor absorbs the default risk.
When comparing factoring to a line of credit, convert both to an annualized cost. A factoring fee on a single invoice can look modest, but annualized, the effective rate is typically higher than a bank line. The trade-off: many businesses that qualify for factoring would not qualify for a bank line of credit, and factoring scales with your sales rather than capping at a fixed credit limit.
Pro tip: Ask any factor you evaluate for a written fee schedule broken down by payment period. Some charge a flat rate for the first period and a step-up for each additional period. Others charge per day. Knowing the structure before you sign lets you forecast cost based on your customers’ actual payment patterns.
Recourse vs non-recourse factoring
In a recourse facility, if your customer fails to pay the invoice, you owe the advance back to the factor. Most factoring facilities in Canada are recourse.
In a non-recourse facility, the factor absorbs the loss if the customer defaults due to insolvency. Because the factor takes on more risk, non-recourse fees are higher and approval criteria are tighter. Non-recourse coverage sometimes applies only to specific events (customer insolvency, for instance) rather than every reason a customer might not pay.
Heads-up: “Non-recourse” does not always mean zero liability. Read the carve-outs carefully. If the factor still holds you responsible for disputes, short-pays or fraud, the practical difference from a recourse facility may be small.
Who factoring suits and when it does not
Factoring works well when:
- You sell to other businesses or to government on 30 to 60 day terms and need the cash sooner.
- Your customers are creditworthy but slow to pay: general contractors, national fleets, government departments, large retailers.
- You are growing fast and your receivables are growing faster than your cash.
- You are a newer business with a short operating history. Because the factor underwrites your customers rather than your balance sheet, startups with strong clients can qualify where a bank would say no.
Factoring is a poor fit when:
- You sell directly to consumers (no B2B invoices to factor).
- Your customers dispute invoices frequently or have poor credit.
- Your margins are thin enough that the factoring fee eats into profitability.
- You need a lump sum for a one-time purchase like equipment (a working capital loan or equipment lease fits that better).
Notification and confidentiality
Most factoring in Canada is disclosed, meaning your customers are told that a factoring company now owns the receivable and should pay the factor directly. Some factors offer confidential (non-notification) facilities where your customer continues to pay you and is unaware of the arrangement. Confidential factoring costs more and usually requires a track record with the factor, but it avoids any concern about how customers perceive the arrangement.
Tax treatment of factoring fees
Factoring fees are generally deductible as a business expense under the CRA’s rule that you can deduct any reasonable current expense you incur to earn income. The fee is an operating cost, not a capital expense, so it reduces your taxable income in the year you pay it. Confirm the treatment with your accountant, especially if you are factoring a large volume and the fees are material.
How CBL Financial can help
CBL Financial connects Canadian businesses with factoring facilities matched to their industry and invoice volume. Approval leans on your customers’ credit, and funding can move in as fast as 48 hours. If you are weighing factoring against other options, apply online or start with the working capital guide to see how the products compare.
Frequently asked questions
Will my customers know I am using a factor?
In a standard (notification) facility, yes. Your customers receive a notice that the factoring company now owns the receivable and should direct payment accordingly. Confidential facilities exist but cost more and have stricter qualification requirements.
How is factoring different from a line of credit?
A line of credit is a loan: you borrow against a set limit and repay with interest. Factoring is a sale of an invoice: the factor pays you now and collects from your customer later. Factoring does not add debt to your balance sheet, scales with your sales and bases approval on your customers rather than your own credit history. The per-transaction cost is often higher than line-of-credit interest.
Can a startup use invoice factoring?
Yes. Because approval rests mainly on your customers’ creditworthiness, a business with a short operating history can qualify if it invoices reliable commercial or government clients. This is one of the main reasons newer companies turn to factoring.
What invoices can be factored?
B2B invoices for completed work or delivered goods, where the customer is creditworthy and there are no liens, disputes or unusual payment terms. Consumer invoices, invoices for work not yet completed and progress billings with holdback clauses typically do not qualify.
Does factoring affect my credit score?
Factoring is a sale of receivables, not a loan, so it does not appear as debt on your credit report. However, if you have a recourse facility and a customer defaults, the resulting obligation could affect your credit if left unresolved.
How fast can I get funded?
Timing depends on the factor and how quickly your application and customer verification complete. Through CBL Financial, funding can move in as fast as 48 hours once the facility is established.
General information, not financial advice.
