Unlocking Working Capital with We Can Capital A/R Financing (Factoring)
In Accounts Receivable Financing for Canadian Government Suppliers and Defence Contractors
Canadian businesses supplying government agencies, defence contractors, and related supply chains often face a practical challenge: expenses come due before customers pay. Payroll, materials, transportation, and operating costs continue while invoices move through customer approval and payment processes.
Accounts receivable financing can help bridge that gap. By turning eligible unpaid invoices into working capital, businesses can meet their commitments and prepare for new opportunities.
We Can Capital focuses on helping Canadian businesses access financing against eligible government receivables and invoices within related supply chains. Joshua Reynolds has placed $50 million in financing using government-backed receivables as security, bringing practical experience to businesses seeking to improve cash flow.
What Is Working Capital?
Working capital is the difference between a business’s current assets and current liabilities. It is a measure of the business’s ability to meet short-term financial obligations.
However, a business can have substantial accounts receivable and still lack cash to pay immediate expenses. An unpaid invoice is an asset, but it cannot cover payroll until payment arrives or financing makes some of its value available.
For government suppliers and defence contractors, access to working capital can help cover:
- Payroll and subcontractor payments.
- Materials, components, and inventory.
- Transportation and delivery expenses.
- Facility costs and everyday operations.
- Staffing and resources needed for additional work.
Why Government Suppliers and Defence Contractors Face Cash Flow Gaps
Winning a contract creates an opportunity, but it does not necessarily provide immediate cash. Businesses may need to complete work, submit supporting documents, and obtain customer acceptance before an invoice becomes payable.
Several factors can affect cash flow:
Upfront operating expenses: Labour, materials, and supplier payments may be required well before the customer pays.
Invoice approval requirements: Missing purchase order references, delivery records, or acceptance documents can delay processing.
Milestone billing: Some contracts allow invoicing only after specific stages are completed and accepted.
Customer concentration: A business that depends on a small number of large customers can experience significant pressure when one payment is delayed.
Growing contract volume: Taking on more work can increase expenses faster than incoming payments.
Receivables financing can help address the period after eligible invoices have been issued. Funding work before delivery or invoicing may require a different financing solution.
What Is Accounts Receivable Financing?
Accounts receivable financing allows a business to access funds based on eligible unpaid customer invoices.
The structure may involve borrowing against receivables or selling them through invoice factoring. Eligibility, costs, responsibilities, and repayment or collection arrangements depend on the financing agreement.
The purpose is to make cash available sooner, rather than waiting for the customer’s normal payment cycle.
How Does Invoice Factoring Work?
Invoice factoring is an arrangement in which a business sells eligible invoices to a financing provider, known as a factor.
A typical transaction follows these steps:
- Deliver the goods or services. Complete the work required to issue a valid invoice and obtain any necessary customer acceptance.
- Submit the invoice and supporting records. These may include the contract, purchase order, proof of delivery, or confirmation of completed services.
- Complete verification and approval. The financing provider reviews the invoice, customer, payment terms, and other eligibility conditions.
- Receive an advance. Once approved, a percentage of the eligible invoice value is deposited into your business bank account.
- Receive the remaining balance. After the customer pays, the reserve is generally released, less agreed fees and adjustments.
Advance rates and funding timelines vary. Complete documentation helps reduce delays, but funding remains subject to verification and approval.
Which Receivables May Qualify?
Potentially eligible receivables may include invoices payable by government organizations, defence contractors, and other businesses within government-related supply chains.
Examples include invoices for:
- Delivered equipment, materials, or manufactured components.
- Completed maintenance and repair services.
- Transportation and logistics services.
- Technology and professional services.
- Completed and accepted subcontract work.
A government-related project does not automatically make every invoice eligible. The financing provider must assess the actual customer responsible for payment and the terms of the receivable.
Government Receivables vs. Government-Related Receivables
A government receivable is payable directly by a government entity.
A government-related receivable may be payable by a private contractor working on a government project. That connection does not, by itself, make the invoice government-guaranteed.
This distinction matters when assessing customer creditworthiness, payment rights, and financing eligibility.
Benefits of Accounts Receivable Financing
Improve Access to Cash
Financing eligible invoices can help businesses cover expenses while waiting for customer payment. This can reduce the cash flow pressure created by long payment cycles.
Support Payroll and Supplier Payments
Earlier access to invoice proceeds can help businesses meet payroll, maintain supplier relationships, and keep operations moving.
Create Capacity for Additional Work
Funds released from existing receivables can support the operating expenses associated with additional projects. Financing availability may grow with eligible invoice volume, subject to review.
Connect Financing to Business Activity
Receivables financing is based in part on the invoices a business generates and the customers responsible for paying them. This can make it a useful option for businesses with completed work and cash tied up in receivables.
Provide Collection Support
Depending on the arrangement, the financing provider may manage collections on purchased invoices. Collection responsibility does not automatically mean the provider assumes every risk of non-payment.
Understanding Recourse, Costs, and Responsibilities
Before entering a factoring arrangement, it is important to understand what happens if an invoice remains unpaid.
With recourse factoring, the business may need to repurchase or replace unpaid invoices under the agreement’s terms.
With non-recourse factoring, the factor assumes specified risks, which may include certain customer insolvencies. Disputes, fraud, and other exclusions may remain the business’s responsibility.
When comparing financing options, review:
- The advance rate and reserve.
- Factoring fees and how they change over time.
- Additional charges or minimum usage requirements.
- Customer notification and payment instructions.
- Responsibilities for disputed or unpaid invoices.
- Agreement length and termination conditions.
The lowest advertised fee does not necessarily represent the lowest total cost. The full agreement should fit your payment cycles and operating needs.
An Illustrative Example
A Canadian supplier delivers components to a defence contractor and issues an invoice. The supplier must pay employees and material vendors before the contractor’s payment is due.
If the invoice meets the financing provider’s requirements, the supplier may receive an advance against it. Those funds can help cover current expenses while the customer completes its payment process.
Once the customer pays, the remaining reserve is released according to the agreement, less applicable fees and adjustments.
This is an illustrative scenario, not a guarantee that a particular invoice or contract will qualify.
How to Prepare for Receivables Financing
Organized records can make the assessment process more efficient. Be ready to provide:
- Business identification and ownership information.
- A current accounts receivable aging report.
- Copies of invoices submitted for financing.
- Relevant contracts and purchase orders.
- Proof of delivery or completed services.
- Customer acceptance records, where applicable.
- Details of disputes, credits, holdbacks, or existing financing arrangements.
Clear documentation helps establish what is owed, who must pay, and whether the invoice is eligible.
Frequently Asked Questions
Can government invoices be financed?
Eligible government invoices may qualify for accounts receivable financing. Approval depends on the customer, contract terms, completed work, supporting records, and the provider’s requirements.
Can subcontractors qualify?
Subcontractors may qualify based on eligible invoices payable by their customers. Working on a government project does not automatically make a subcontractor’s invoice a direct government receivable.
Can I finance a contract before completing the work?
Accounts receivable financing generally applies to eligible invoices for delivered goods or completed services. A contract award or purchase order alone is not the same as an eligible receivable.
How quickly can funding be available?
Timing depends on onboarding, invoice verification, customer confirmation where required, and final approval. Accurate, complete records can help avoid unnecessary delays.
Does factoring eliminate the risk of non-payment?
No. The allocation of risk depends on the agreement. Even non-recourse arrangements generally cover specified risks rather than every reason an invoice might remain unpaid.
Put Your Receivables to Work
We Can Capital helps Canadian businesses explore accounts receivable financing for government receivables, defence contracts, and related supply chains.
Whether your priority is covering payroll, paying suppliers, or supporting growth, eligible unpaid invoices may provide a source of working capital. Contact We Can Capital to discuss your receivables, financing needs, and available options.