Securing business financing in Canada has historically been a challenge for many entrepreneurs. However, the landscape is evolving, with specialized small business financing companies entering the market, offering alternatives to traditional bank loans and credit lines. Qualifying for conventional financing often proves difficult due to stringent lending criteria.
For Canadian companies that supply goods or services to other businesses or government entities, invoice factoring and purchase order financing present viable solutions.
**Invoice Factoring: Bridging the Payment Gap**
While securing contracts with mid-sized to large companies offers stability, extended payment terms (often up to 60 days) can strain cash flow. Invoice factoring addresses this issue by providing immediate access to funds tied up in outstanding invoices. You essentially sell your invoices to a factoring company, receiving an upfront payment (minus a small fee). The factoring company then collects the full invoice amount from your client, eliminating the waiting period and improving your working capital.
**Purchase Order Financing: Funding Supplier Payments**
Resellers and wholesalers often face the challenge of financing supplier payments to fulfill customer orders. Purchase order financing provides the necessary capital to cover these expenses. The financing company advances funds to your supplier, enabling you to fulfill the order and deliver to your client. Repayment occurs when your client pays the invoice, with the purchase order serving as collateral.
**The Advantage: Accessibility**
Both factoring and purchase order financing are relatively easy to obtain and can be implemented quickly. The primary requirements are a profitable business and a customer base of reputable clients.