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A/R FINANCE SOLUTION!
ACCOUNTS RECEIVABLE FINANCING FOR CANADIAN BUSINESS
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Financing & Cash flow are the biggest issues facing business today.
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
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EMAIL - sprokop@7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Accounts Receivable Financing Factoring emerges as a dynamic solution, providing liquidity to companies by leveraging their outstanding invoices as collateral.
Struggling to secure financing for your business needs? Explore the power of Accounts Receivable Financing Factoring to unlock immediate capital from your outstanding invoices.
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer ACCOUNTS RECEIVABLE FINANCING FACTORING solutions that solve the issue of cash flow and working capital – Save time and focus on profits and business opportunities
INTRODUCTION: ACCOUNTS RECEIVABLE FINANCING SOLUTIONS
Account receivable financing factoring is actively sought by thousands of Canadian business owners and financial managers. The A/R component, i.e unpaid invoices, next to cash on hand itself, is the most liquid asset you have on your balance sheet.
What issues are key to understanding the true value of ‘factoring receivables’? It's the most popular area of asset-based lending in Canada. There are several, so let’s dig in.
WHAT IS INVOICE FACTORING FROM A FACTORING COMPANY
Before addressing so those issues, it's prudent to make sure we are also singing from the same hymn book about what exactly A/R financing is. Essentially it's a direct competitor to a bank financing via a line of credit, which also of course offers business lines of credit secured by receivables.
THE DIFFERENCE BETWEEN FACTORING AND BANK FINANCING
Just as any other third party, banks collateralize your accounts receivables and allow you to borrow against them, commercial finance companies offering 'factoring' solutions create paperwork that allows you to transfer ownership of receivables as you generate sales. The benefit to your firm is instant cash at all times. So whether your firm sells its accounts on a short-term basis, or ' assigns' them to a bank it's the same thing as it relates to borrowing against your receivable base. The process allows companies to generate the working capital they need to fund day-to-day small business needs.
WHY IS FACTORING POPULAR?
Why then is account receivable finance a common choice for business owners? Simply because it's an ongoing source of funds without many of our Canadian chartered banks' constraints and approval criteria.
HERE'S A GOOD EXAMPLE OF HOW THE FACTORING PROCESS BENEFITS COMPANIES
One of the best analogies in understanding why a business employs factoring receivables is to analogize it to a retailer that offers credit card payment. Instead of waiting 30 days or more for payment and limiting how much he can sell the credit card firm pays the retailer the same day.
WHAT DOES FACTORING COST?
Accounts receivable factoring cost is considered more expensive than bank financing but the trade-off is the cash flow that is no longer limited to waiting for large clients or government accounts, etc to pay your firm. Receivables factoring is not financed via an interest rate, but are "factoring fees" typically in the 1-2% range of the receivable - companies with good gross margins can easily absorb that factoring fee and turn their businesses into cash machines with the services of an accounts receivable factoring company.
HERE ARE 7 ISSUES TO CONSIDER IN FUNDING YOUR A/R
So let’s cover 7 key issues that you must weigh, consider and discuss when selecting the right A/R Finance solution.
First of all, owners need to understand that you are still responsible for any bad debt, as you would be in a bank financing scenario. But you should know also that non recourse financing and credit insurance can be implemented to offset the bad debt issue.
Issue # 2- your overall customer base will be a key factor in the pricing and risk attributed to your factoring transaction. 99.99% of the time all North American receivables can be financed. On occasion, the issue of ' concentration ' i.e. having just a couple of major clients might become a discussion issue.
Issue 3 - Your historical ability to collect your A/R and the invoice size are always considered. Typically the best pricing for factoring A/R is for facilities above 250k, but the bottom line any size of A/R portfolio can be considered for financing. The number of accounts receivable invoices your firm generates from sales and the overall size of your a/r portfolio help determine final pricing and the cash advance percentage, which is typically 90% when factoring accounts.
Issue 5 - there are numerous factoring companies and firms in Canada. All of them have different focuses on the size of the transaction when factoring accounts receivable, types of industries they prefer to finance, and even where they are located as to where your business is located. Recourse factoring is the most typical solution used by borrowers where the company retains credit risk on outstanding invoices as it normally would until the customer pays.
Issue 6 - Numerous specialty areas are often the most fertile ground for A/R finance firms - they include transportation, trucking, personnel firms, etc. But the bottom line is that any commercial receivable can in fact be financed
WHAT DOES 7 PARK AVENUE FINANCIAL RECOMMEND AS THE BEST TYPE OF FACTORING
Our final point, issue # 7 is our recommendation to consider CONFIDENTIAL RECEIVABLE FINANCING. Unlike most receivable finance services, you can bill and collect your A/R without notice to any other client, supplier, etc. Thats when this type of factoring agreement is as close to bank financing as you'll get.
As we have noted, when it comes to bad debt exposure business owners can also choose between non recourse factoring and recourse factoring, which is simply carrying your usual credit risk or transferring it to the finance company when financing accounts receivable.
KEY TAKEAWAYS
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Invoice Factoring: Turning outstanding invoices into immediate cash flow.
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Receivables Management: Efficiently handling outstanding customer payments.
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Cash Flow Optimization: Ensuring steady cash flow for business operations.
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Financing Solutions: Exploring various options to secure capital for business needs.
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Working Capital Enhancement: Strengthening liquidity for day-to-day operations.
CONCLUSION
If you're interested in ensuring you have covered off all the issues in considering accounts receivable factoring your business must seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can help you ensure you've covered off-key issues to understand how accounts receivable factoring works.
FAQ:FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION
How does Accounts receivable factoring work? Invoice factoring involves a company selling its outstanding invoices to a third-party financing company (factor) at a discounted rate. The factor then collects payment from the customers directly, providing immediate cash flow to the business.
What are the benefits of using accounts receivable financing? Accounts receivable financing offers several advantages, including improved cash flow, quick access to capital, reduced reliance on traditional loans, and the ability to focus on core business operations without worrying about late payments.
Can businesses of all sizes utilize receivables factoring? Yes, businesses of all sizes can utilize receivables factoring, from small startups to large corporations. Factors often tailor their services to meet the specific needs of each business, regardless of size.
How does accounts receivable financing differ from traditional loans? Accounts receivable financing differs from traditional loans in that it leverages outstanding invoices as collateral rather than requiring tangible assets or a strong credit history. Additionally, approval and funding are typically faster with receivables financing.
Is a good credit score necessary for accounts receivable financing? While a good credit score can be beneficial, it is not always necessary for accounts receivable financing. Factors primarily assess the creditworthiness of the business's customers, as they will be responsible for repaying the invoices.
