Common Fallacies about Toronto Accounts Receivables Factoring

Trade receivables financing specifically invoice factoring is becoming very common all over the world. However, in Toronto accounts receivables factoring is still subject to a lot of misconceptions. So to set matters straight, here are some of the more common fallacies:

  1. Factoring is only for large companies. Admittedly, this fallacy was actually a fact more than 2o years ago. But today, factoring is used by small and medium sized businesses as well. This is especially true since the recent recession, when banks became much more cautious about lending money to small businesses. The factoring industry opened its arms to SMBs and this relationship has become stronger since.

By 2013, factoring worldwide was a $3 trillion business, and that’s not all with large corporations, obviously. According to Forbes, alternative means of capitalization for small businesses such as factoring would be a major trend for 2015.

  1. Factoring is very expensive. Again, this depends on how you look at it. At first glance, it is true that the cost of factoring may be greater than what a bank would charge in interest for a business loan. But according to one report, big banks approved only 21% of small business loan applications in January 2015. That’s a rejection rate of 79%! For small banks it’s a bit lenient, but the approval rate is still less than 50%.

So you don’t compare the cost of factoring to the cost of a bank loan, which is something you’re unlikely to get anyway. What you should compare it to is the cost of not getting the money from factoring. How much would it cost you if you can’t get the funding needed to cover the payroll, buy supplies, or get a move on in your advertising? If the advance money you get from factoring increases your sales to up to 50% then isn’t that money well spent?

  1. Factoring is a last-ditch effort to save a failing company. Now this is absolutely not true at all. While some companies do use the money for such dire emergencies as meeting payroll, the truth of the matter is that factoring companies mostly do business only with companies with a future. The factors think that the company can overcome these temporary setbacks.

The real truth of the matter is that most businesses use factoring for growth, and not just for survival. The proof is that they have creditworthy customers who pay fully and on time, which is what the factors look for when they offer the advance on accounts receivable. They give you the money in advance so that you don’t have to wait 30 or 60 days, and they get back the money when the customers finally pay up.

  1. The collection methods of factoring companies may alienate customers. Again, there is no truth to this nonsense. Factoring companies simply notify your customers of where they should send their payments, and they also send them very polite notices about overdue bills. When there’s a real problem about a non-paying customer, then you’re called in and you’re asked to deal with your customer yourself.

In Toronto accounts receivables factoring is also poised to make a big splash among the small business market. When the truth about factoring spreads, there’s no doubt that small businesses will take advantage of this opportunity for capitalization.

Key Reasons Why Toronto Accounts Receivables Factoring is Better than Bank Loans

Many Toronto businesses today have realized that getting a loan from a bank is a truly excruciating process, and often the result can be a spectacular failure. But now alternatives such as Toronto accounts receivables factoring are beginning to look more and more attractive to many SMBs.

The Problem with Bank Loans

Trying to borrow money from a bank, especially in Canada, is a process that’s fraught with many challenges. One immediate problem is the comparatively limited number of funding sources. This is the reason why many Canadian companies are advised to seek financing from US banks and financial institutions. Many US financial institutions are searching for earning opportunities abroad, and Canada is an attractive option.

Yet borrowing from a bank is very difficult regardless of whether it’s in Canada or the US. Sometimes banks have rules that apply to your business in particular. For example, some banks today simply refuse to offer financing to restaurants. What’s worse is that this may be the reason for the refusal to finance your deli, even after the loan application process has gone on for months.

And the time needed for the loan application process can truly test your patience. Banks need to know a lot about your company before they decide to finance it. You have to explain who you are and why you and your company should be trusted. You need to demonstrate your understanding of the market by differentiating yourself from your competitors. You’ll need to explain how you intend to use the funding you will receive, and what your revenue expectations are. And the list goes on and on.

How Factoring is Different

In contrast, numerous Toronto accounts receivables factoring services have sprung up and they offer a better alternative than banks. Factoring is one of the more popular options. In this scenario, you exchange your account receivables for instant cash that’s about 80% of the value of your invoices. Once your customer pays the factor in full, the factor takes its fees and then gives you the rest of the payment.

With factoring, you don’t need months to see whether you will get the loan you need. Instead, you get an answer in a week, maybe less. What’s more, your chance of getting approved for financing is much higher.

The reason is simple. Factors don’t really need to understand the minute details of your business. They only need to determine the trustworthiness of your customers. So if your customers have good credit, then they will give you the funding you need.


The most obvious advantage of traditional loans is that they generally levy lower interest rates than what factors charge. But low interest rates don’t mean a thing when you can’t get the funding you need.

With Toronto accounts receivables factoring, you get your funding right away, and it can continue for months. And as the volume of your account receivables grow, your financing increases to meet your needs.