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Accounts receivable services in Canada. We thought it was appropriate perhaps to use the term 'conspiracy theory' around the subject because misinformation abounds and buying into some of that misinformation can be a costly experience.
Let's examine some of the key issues around that misinformation - in essence 'what is factoring' or A/R discounting and 'how does it work?'
That misinformation we talked about always seems to revolve around several key issues. What are those issues? They're as follows:
Is A/R financing only available for certain businesses?
Can a\r finance be achieved with consumer receivables?
Will A/R financing significantly increase my business financing costs?
Is my firm's overall credit quality the key determinant in access and cost to receivable finance in Canada?
Those simple questions from clients demonstrate clearly that the info and advice you might be getting from some people clearly lead us to believe that Canadian business owners and finance managers are looking for the straight goods - so let's try and deliver on that!
First of all, accounts receivable finance services for financing are pretty well available to any business in Canada. Your firm can be a start-up, an established business, or a significant corporation.
As a general rule only commercial receivables can be financed, or 'factored'; consumer receivables aren't really applicable to this type of financing. (Consumer receivables can be financed through facilities such as merchant advance financing, etc.)
The costs of A/R financing in Canada varies based on several factors. As a general rule, we can use 2% as your cost, which is based on a 30-day term. We constantly point out to clients that when you consider such aspects as opportunity cost and the fact that you are already bearing a huge cost by carrying inventory and receivables... well... you get the point! All of a sudden things begin to make more sense.
We also point out that when you use accounts receivables services such as factoring/invoice discounting you’re in 'turnover mode'. You're getting cash immediately on generating sales, allowing you to replicate the cycle immediately, generating even more sales and hopefully more profits.
So what does in fact determine your access to A/R financing? While the overall credit situation of your firm plays a bit of a factor in the process, in actuality it is the number of clients you have, the size and quality of your A/R, and your current turnover practices when it comes to collections. It’s those factors that define your ability to access A/R finance.
Many business owners, in firms small and large often find that more traditional financing can restrict their firm’s growth. It's at that time that they ask the question 'what is factoring' and 'is it the answer to my cash flow and growth challenges'? It well might be as there are no limits in A/R financing - it grows as your sales grow on a daily basis. Bottom line, no more growth constraints.
We would add that if you access the right type of facility, for example, a confidential invoice financing service you're in a position to continue to bill and collect your own invoices with the confidence that suppliers and clients will never be notified of how you are financing your firm.
Speak to a trusted, credible and experienced Canadian business financing advisor. Let's debunk some of those conspiracy theories in A/R finance and demonstrate how you’re firm and positively access cash flow today.
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