Finance

What You Need to Know on Factoring in Nova Scotia

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You want your business to grow. Your customers, suppliers, ideas, and other stakeholders are ready, but your balance sheet is not. There are assignments that you’ve completed, jobs that you’ve delivered, or even products that you have already shipped. But have not yet been paid. That is where a factoring in Nova Scotia comes in.

What is factoring?

Factoring is a way of financing crafted for medium and small businesses, especially those that do not have a long term established banking record with a major financial lender. Factoring in Nova Scotia is a creative way for your business to access the funds you have tied up in accounts receivable.

What is a factoring company?

A factoring company is one that works with businesses that are facing cash flow issues. The problems may be a result of slow-paying customers or even long customer payment terms. A factoring company comes in when by purchasing invoices of the company or business. It is essential to note that factoring companies in Nova Scotia are not loan lending or money lending institutions. What they do is purchase accounts receivables or invoices from their customers and earn a profit from that.

How invoice factoring works

The process of invoice factoring is not as complicated. The company purchases account payables in say, two installments. The initial installment gets extended to the client at the time the invoice sale is through. The initial installment will range from 70% to 90% of the amount on the invoice, with the exact percentage varying by the factoring company or the industry.

The other installment gets extended when the accounts receivable gets collected. What’s remaining of the payment is about 10% to 30% that was uncleared on the first installment. This is less the financial fee that has to get paid to the factoring company in Nova Scotia. The clients can opt this at their regular pace, as long as they don’t default in making the payment.

What happens if the invoice factoring client fails to pay?

Sometimes, there will always be an issue or two revolving around accounts receivable where they are never collected. It would mean it’s the client will face challenges in repaying the factoring company in Nova Scotia. How the factoring company tackles these issues is entirely dependent on what you signed within the terms and conditions in the factoring agreement in case of a default in payment. There are two most common methods used. These are the recourse and non-recourse accounts.

  • Recourse account

If the condition and terms in the factoring company’s agreement are recourse, it means that the client is faced with the responsibility of collecting delinquent accounts. In other cases, the recourse amount might get tasked with paying a huge percentage of the value in the invoice. It is because of the added security factor. Under these accounts, the client can opt to buy back their invoice from the Nova Scotia factoring company and try to pick it by themselves. When faced with this option, you take several options legally to collect overdue debts. If you have no access to finances to purchase the invoice for the second time, you can switch invoices with the factoring company in Nova scotia. The newly acquired invoice will serve as a replacement for the amounts of the delinquent invoice, and with this, you can try to collect the debt.

Non-recourse account

If the terms on the agreement between your business and the factoring company are non-recourse, it means that the responsibility to collect delinquent accounts falls on the factoring company in Nova Scotia. If the factoring company fails to collect the invoices, they accept the loss, and their client does not get penalized. A non-recourse account is a viable option for the client since finances from the factoring company in Nova Scotia can get spent in their desired way without having to think about the delinquent accounts.

Which businesses or companies can work with factoring companies?

Almost every industry can seek the services of a factoring company in Nova Scotia. Some of these businesses use factoring companies more than others, depending on their business operations. Some of these industries include:

  • Foodservice
  • Landscaping
  • Trucking
  • Technology
  • Manufacturing
  • Consulting
  • Medical supplies
  • Office supplies
  • And many more

When should you consult a financing company in Nova Scotia?

Seeking the services of a factoring company in Nova Scotia is ideal in instances such as:

  1. When you do not qualify to get a loan or financing with a bank
  2. If your customers pay within thirty to sixty days
  3. If you intend to grow your business
  4. If your business is facing cash flow problems
  5. If your clients have a good credit history
Abel Eino
the authorAbel Eino