YOUR COMPANY IS LOOKING FOR CONTRACT FINANCE!
NEED TO BORROW MONEY TO FINANCE CONTACTS AND ORDERS?
You've arrived at the right address! Welcome to 7 Park Avenue Financial
Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs
EMAIL - sprokop@7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Contract payment financing in Canada. Here's a shocker for you (not!) Generating sales revenue does not equal cash! And if you're in the contracts finance business there's an even longer lag than usual. Can this be addressed through another type of business loan? Yes, in a number of manners, both internally at your firm, and externally through proper financing. Let's dig in.
CONTRACT WORK INVOLVES THE CHALLENGE OF WAITING FOR PAYMENT
If you're fortunate enough to be in an ' all-cash ' business your investment requirement in accounts receivable is... Nil. Businesses selling on standard commercial credit terms typically have 30 days terms, and receivables tend to be collected usually within 30-60 days under a typical demand loan arrangement with a bank or commercial lender. Businesses selling under contracts with clients find themselves in a unique position; they are required to pay for materials, wages, and other goods and services while waiting for payment under the terms of their longer contracts with clients. That type of financing need is rarely covered off in a standard loan agreement.
The essence of contract finance revolves around your ability to ensure you have a creditworthy customer and legitimate supplier. As your firm completes work or services you will typically be invoice on a ' progress' type basis. That of course allows your firm to eliminate significant waiting periods for payment of your billed accounts receivable. Your ability to finance the contract with an appropriate commercial lender allows you to take on business and work knowing you will have cash flow along the way. There is a ' fee ' for the billed contract receivables to be financed, typically in the 2-3% range.
In order to access proper contract finance, your customer must be creditworthy. Conventional bank financing and business credit lines are not really set up to facility contracts finance so specialty financing is required. Your arrangements with your client must be clearly specified around work done and when payment is due.
CONTRACT FINANCING ALLOWS YOU TO CREATE ADDITIONAL REVENUES AND MEET FINANCIAL OBLIGATIONS
If proper contracts and contract financing is not put in place those businesses are challenged to create additional revenues, let alone maintain their commitments to suppliers, banks and commercial lenders.
Businesses that have proper contracts in place with reputable clients are actually in a better position than they might think. The trick is to ensure that your lender understands the nature of your payment structure and that your payment rights are properly assigned in order that they can be financed.
MONETIZE YOUR CONTRACTS
Monetizing your contracts, if done successfully allows you to finance contracts properly and invest in more projects. The key to proper financing of your contracts is not necessarily your balance sheet - rather it’s your credibility and expertise to complete your contracts, bill them properly
4 REASONS WHY FIRMS NEED CONTRACT AND PURCHASE ORDER FINANCING
Typical reasons for contract/PO financing are as follows:
Your traditional lender/bank is unable to accommodate financing of this type
Suppliers insist on some level of prepayment
Large contracts are being turned down by your company due simply to lack of financing and inability to pay back suppliers on time or in advance
Additional debt and equity financing and loan agreements are either not available or not desirable
2 METHODS OF FINANCING CONTRACTS AND PURCHASE ORDERS
Your firm’s invoices to your clients can be monetized directly into cash in one of two ways. They can be cash flowed with immediate funding via an asset-based line of credit, or alternatively, suppliers can be paid directly via a PO FINANCE/SUPPLY CHAIN facility. While the cost of financing and the interest rate on PO financing and contract financing is higher the financing allows your business to access cash and the amount of money due for work and products that have been supplied and delivered - many times under a milestone type arrangement between your firm and the client.
3 KEY BENEFITS OF CONTRACT FINANCE
The benefits of a properly structured CONTRACT FINANCE facility are key. They include:
Vendor and Supplier Satisfaction
Ability to take on significant revenue projects not previously considered
Pricing power via supplier discounts
CONCLUSION
Properly structured financing won't be prejudicial to the type of industry your firm is in. Unfortunately, many firms find themselves out of favour when it comes to their search for traditional contract finance. That shouldn’t be the case if done properly. In some cases, the easiest way to resolve contract funding is to simply have your client acknowledge that the work you have billed for has been performed/received. What could be easier than that?
By the way, in the technology industry, many contracts can also be financed under recurring revenue streams your firm bills - that might be software as a service, long term service contracts, etc. Accounting and legal advice on larger contracts is of course recommended.
Bottom line, don’t let the inability to finance contracts hinder your sales growth and financial progress. If your works product or services require borrowing money or paying suppliers in advance seek and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with contract payment financing solutions and avoid borrower defaults as you grow your business.
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Stan Prokop
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