How to Mitigate the Impact of the Coming Recession Through Invoice Factoring

Mississauga Board of Trade
Mississauga Board of Trade


January 23, 2023


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Author: J D Factors

Canada’s economy is expected to experience two consecutive quarters of negative GDP in Q1 and Q2 of 2023, according to expert economists. This will constitute a technical recession, and while economists are optimistic it will be short lived, it is better to prepare for the worst as a business owner. Lowered consumer spending, a more challenging labor market, and rising interest rates will all present challenges to your business in the short term and, if not handled well, may continue to plague you even after the recession ends and the economy recovers. It is important to prepare yourself with the right tools now so that you’re able to overcome these challenges when they arise, and invoice factoring is a strong option. Here is why.

Cash Flow Challenges in a Recession
When consumer demand is lower, your clients take more time to pay you as they handle their own challenging financial situations. Delayed payments begin to impact even businesses that are not consumer facing. As the impacts ripple through the economy, most businesses will find themselves shorter on cash than normal. You’ll still have to pay your operating costs or make investments for new work, but the payments you receive for work that has already been completed will be delayed.
The results of a constrained cash flow can be very negative for your business. It can lead to missed opportunities to invest and become more competitive, delayed payments to your own supplier weakening your relationship, and more. While temporary cash flow challenges can sometimes be met by dipping into savings, this is not a sustainable solution when facing a recession, especially not a lengthy one.

Why Invoice Factoring is a Strong Solution
Invoice factoring allows you to skip the wait to get paid. Your factoring company pays you immediately for any invoice that you issue and waits to collect the money from your client themselves. As a result, you have cash available even as your clients take much longer to pay. That is valuable money for any business, but especially those who have small margins or who need to make investments to keep their business competitive through the recession. You can afford to hire new talent even amid the labor shortage, invest in new software solutions to make your business more streamlined or competitive, and stay afloat through a macroeconomic downturn by avoiding any cash flow issues.

Why Not Choose Lending?
Lines of credit, credit cards, and loans from banks and financial institutions are no longer as viable a solution as they once were. With interest rates rising, lending is no longer the most beneficial approach to counteract cash flow issues in a recession and can instead lengthen the road to economic recovery for your business.

If you choose new lending products today, more payments will go to interest while less go to principle, and you will end up paying more for the same amount of money than you would have in the past. For businesses with small margins, making larger payments on loans can put serious strain on your cash flow—precisely what you are trying to avoid.

In contrast, the fee for factoring is not directly connected to the interest rate and you do not make payments on the money forwarded to you by the factoring company. A small fee is paid immediately,
which the factoring company withholds from you when they pay your invoice. The rest is immediately available cash, which you can use to continue to run and scale your business in a recession.

You can learn more about factoring as a tool to weather the recession by contacting J D Factors.

Located at 315 Matheson Blvd E. Mississauga, ON L4Z1X8 1-800-263-0664

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Mississauga Board of Trade
Mississauga Board of Trade
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