Economic and Political Environment
As an affluent, high-tech industrial society in the trillion-dollar class, Canada resembles the US in its market-oriented economic system, pattern of production, and affluent living standards. Since World War II, the impressive growth of the manufacturing, mining, and service sectors has transformed the nation from a largely rural economy into one primarily industrial and urban.
The 1989 US-Canada Free Trade Agreement (FTA) and the 1994 North American Free Trade Agreement (NAFTA) (which includes Mexico) touched off a dramatic increase in trade and economic integration with the US, its principal trading partner. Canada enjoys a substantial trade surplus with the US, which absorbs about three-fourths of Canadian exports each year. Canada is the US's largest foreign supplier of energy, including oil, gas, uranium, and electric power. Given its great natural resources, skilled labor force, and modern capital plant,
Canada enjoyed solid economic growth from 1993 through 2007. Buffeted by the global economic crisis, the economy dropped into a sharp recession in the final months of 2008, and Ottawa posted its first fiscal deficit in 2009 after 12 years of surplus. Canada's major banks, however, emerged from the financial crisis of 2008-09 among the strongest in the world, owing to the financial sector's tradition of conservative lending practices and strong capitalization.
During 2010, Canada's economy grew only 3%, due to decreased global demand and a highly valued Canadian dollar.
Key economic indicators:
- Population: 34,030,589 (July 2011 est.)
- GDP (purchasing power parity): $1.335 trillion (2010 est.)
- Per capita GDP: $39,600 (2010 est.)
- Real GDP growth: 3% (2010 est.)
- Unemployment: 8% (2010 est.)
- Public debt: 34% of GDP (2010 est.)
The Banking Environment
The Canadian Banking industry is made up of 6 major Banks, plus an array of smaller financial/deposit taking institutions (regional banks, trust companies, credit unions, caisse populaires). Most financial institutions (including Banks) are regulated by the Government of Canada.
Cash Management Features
Pricing is typically volume-driven on a per-item basis. It is a requirement that clients receive statements on their bank accounts on a monthly basis, however statements can be offered more frequently.
Companies operating non-resident accounts are generally subject to withholding taxes. It is suggested that any company considering business in Canada consult the appropriate tax authorities on the subject.
Canada has stringent legal requirements regarding Money Laundering and appropriate due diligence is required when accounts are opened. In addition, large deposits and unusual transactions are subject to investigation and scrutiny by the banks. It is suggested that companies consult their appropriate legal and tax advisors on doing business in Canada and participating in Canada’s financial system.
Electronic banking systems are widely used in Canada. Currently, the most common type of electronic banking system includes the ability to report balances and transactions via desktop computer software installed on the client’s PC.
A variety of electronic payables and receivables software are available at most major banks including SWIFT wire initiation services. The migration of these platforms from desktop software applications to Internet based technologies has begun. These electronic systems are used by both small and large companies.
Payments & Collections
Payment clearing is performed by the Canadian Payments Association (CPA). Clearing is centralized for the whole nation and there is no regional clearing. Funds are credited as "same-day value" once cleared. In addition to CAD cheques, USD cheques that are drawn on USD accounts in Canada at Canadian Banks are also cleared in Canada.
The most common types of payments are Cash, Cheques, Electronic Fund Transfers (EFT) via the ACH system, Point of Sale (POS) payments including Credit and Debit Cards, Wire Transfers and Electronic Data Interchange (EDI). Generally, paper payments are used 70% of the time with electronic payments comprising the remaining 30%.
Payroll payments typically comprise a combination of cheques and direct EFT transfers. Same-day value is given to all payments once that payment is deposited into a bank account.
The most common ways that a company can collect funds is through the receipt of cheques, credit card receipts or cash. Companies can also initiate their own direct credits via the ACH system, which is typically used by companies with recurring receivables.
Lockbox services are available but are not as widely used as in other countries due to the centralized clearing system and same-day value availability. Different types of companies will usually use a combination of different collection methods depending on the nature of their business.
The most common type of business account is the current account. Customers can collect and disburse funds out of the same accounts or use separate accounts if they wish. Foreign currency accounts can be operated with the most common foreign currency account being the $USD account.
Interest-bearing accounts are available and a wide range of short and long-term investment options can be exercised. CAD and USD accounts are typically accessible via electronic banking channels while limitations exist on other foreign currency accounts.