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Financing & Cash flow are the biggest issues facing business today
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Waiting for anything good to happen in business isn't really our favorite thing to do. That's why cash flow finance via a purchase receivables strategy to finance your business eliminates waiting.
Waiting for what? Well the question simply becomes: 'Would you rather have cash in the bank now for your sales, or would you prefer to wait 30, 60, and oh wow... 90 days for the funds due your firm from your clients?”
The answer is pretty obvious of course, and that’s why factoring, aka the purchase of your receivables by an independent finance firm is one of the quickest and most solid ways to eliminate the cash flow growth and survival programs that come with growing your business. Those cash flow challenges come of course, from the simple fact that as you sell more, your inventory and receivable portfolio grows.
So why don’t hundreds of thousands of firms that are eligible for this method of financing utilize it? We don’t know for sure but we often think it boils down to either they haven’t heard about it, or they have but don't understand how it works.
How could Canadian business owners not consider using a financing method that eliminates the pressure of having cash on hand, making payroll, and paying your government taxes such as HST and employee remittances?
How then does cash flow finance via factoring work? It couldn’t be simpler. As you make sales you are able to borrow immediately, and by immediately we mean 'same day' against those sales. The way the industry handles the mechanics around this is that your A/R is in effect 'purchased' as you generate sales. And by the way, with the right type of facility you certainly are under no obligation to finance all your sales, only the amount you require. That’s a key flexibility option.
Our opinion is that the best purchase receivables program is in fact a confidential one, one that allows you to bill and collect your own A/R. The majority of the industry in North America does not offer this solution, but working with an experienced advisor allows you to in fact choose this method over the traditional one as long as you identify up front in discussions that the confidentiality aspect is important to you.
‘Can we learn more about the daily 'mechanics' of this method of financing?' That's a typical client question, so here's the answer. As you generate sales, you submit invoices for that product that you have rendered or delivered. (Service receivables can be financed also!)
Typically you receive 90% of those funds the same day - the balance is held as a holdback or buffer. You receive the other 10% when your client pays, less a discount of approximately 2% for financing costs if your terms are 30 days and your client pay in 30 days. Otherwise daily per diem charges run until your customers pay.
So why is this method of Canadian business financing fast and why is it effective at the same time?
The answers should seem obvious - you accelerate cash flow, your receivables are the asset you are borrowing against, so there is no debt incurred. At the same time, as a business owner or financial manager you're doing what we think you do best - running and growing your business, getting new larger orders, etc.!
Speak to a trusted, credible and experienced Canadian business financing advisor on the method of receivable financing via cash flow finance factoring that works best for your firm.
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Stan Prokop 7 Park Avenue Financial/Copyright/2020
