YOUR COMPANY IS LOOKING FOR FACTORING!
Invoice Factoring For The Balance Sheet
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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
When the Canadian business owner or financial manager wants to be more effective with their accounts receivable AR Finance strategy experts will tell you that it comes down to understanding 3 basic concepts around the process known as factoring.
What are they? They are not as complicated as you might think. Let's recap them and show you how this method of business financing, aka ' receivable financing/factoring allows you to leapfrog financial challenges that seemed like huge barriers in the past.
THE 3 CRITICAL CONCEPTS IN ACCOUNTS RECEIVABLE FINANCE SOLUTIONS
So back to those three critical concepts - they are as follows:
1. All borrowing under this facility is based on the value of your accounts receivable, and typical borrowing limits are 90% of all A/R under 90 days old
2. Factoring finance is not debt and it’s not managed in the way that a Canadian chartered bank would monetize its accounts receivable
3. The way to win when you have a finance facility such as this is to understand that relationship between all 3 parties to the transaction - your firm, your client and your finance factor partner. Putting the right type of facility in place is what allows you to increase cash flow.
WHAT AMOUNT OF FUNDS ARE ADVANCED IN THE A/R FINANCE PROCESS?
It's also critical to understand what amount of your sales is eligible when you consider this method of financing. We've previously referenced that you typically can borrow up to 90% of your total A/R - and we remind clients that typically a Canadian chartered bank would margin your facility at only 75% - so you are already ahead of the game!
PICKING THE RIGHT AR FACTORING COMPANY IS CRITICAL
If you are working with the right partner firm you should be in a position to finance all North American receivables. The challenge of non-North American A/R, i.e. foreign sales typically can be solved by putting a credit insurance policy in place. There are a solid handful of credit insurance firms in Canada that will assist you in ensuring your sales, thereby making them easier to finance.
On occasion, it may be more difficult to finance government sales due to the government's position around recognizing this type of financing.
When you enter into a factoring facility its critical that your finance firm understands your day-to-day operations, specifically as they related to your historical bad debt experience, customer returns, etc. This entire area is viewed as ' dilution ' by your finance firm, and they want to simply understand the true value and quality of your a/r .. so they can finance the maximum for your company.
THE COST OF RECEIVABLE FINANCING
Cost is always critical when it comes to entering into any business financing facility - whether that be term debt, loans, or, in our case today, monetization of assets. While factoring has a reputation for being expensive financing this is not necessarily true.
At the end of the day costs involved in accounts receivable factoring ( the factoring fee is in the 1.5-2% range ) must be viewed as your trade-off to more liquidity, generating more sales more often, and rationalizing that you might not be able to get the same amount of capital elsewhere. The process is not a business loan, but a solution that allows a company to sell its accounts receivable as it generates cash for immediate sales.
CONCLUSION
Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in ensuring you’ve got our 3 concepts in working capital invoice factoring and accounts receivable financing solutions nailed down properly!
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Stan Prokop
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