BUSINESS RECEIVABLES FUNDING: Unlocking Growth Opportunities7 Park Avenue Financial

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You Can’t Handle The Truth!  Business Receivables Funding
Understanding Receivable Finance Cost In Canada



YOUR COMPANY IS LOOKING FOR BUSINESS RECEIVABLE FUNDING!

INVOICE FACTORING RATES VIA ACCOUNTS RECEIVABLE FINANCING COMPANIES - EXPLAINED!

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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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BUSINESS RECEIVABLES FUNDING

 

Struggling to secure financing for your business? Discover how Business Receivables Funding can unlock growth opportunities

 

 

Exploring the Advantages of Business A/R Financing

 

Most of us recall that iconic 'You can't handle the truth...' movie moment, and it seems appropriate to us that comment is pretty typical of explaining to clients the cost of factoring business receivables funding in Canada..

 

Until now, understanding factoring fees can be confusing and complex... but it should not be!

 

Securing adequate funding is crucial for sustained growth and success. Yet, many businesses face challenges in obtaining financing to support their operations and expansion efforts. Business Receivables Funding emerges is a game-changer. Offering a flexible and efficient solution, it enables businesses to leverage their accounts receivables to access the capital they need.

 

The result is accelerating your cash flow, seizing growth opportunities, and confidently navigating financial obstacles. With proper a/r financing solutions, this becomes a reality.

 

Advantages & Benefits of A/R Financing

 

 

Working Capital Acceleration via funding current assets on the company's balance sheet

Improved Days Sales Outstanding, which is a key measurement of business success

The ability to take on debt for other long-term focus areas of your business

Transferring borrowing costs into a variable cost financing expense

Ability to take on larger orders/contracts, etc, before the customer pays - The factoring company pays your company for submitted invoices

 

 

Decoding Factoring Economics: Unveiling the Mechanisms

 

 

How do factoring companies and a/r finance firms make money - that's a common question we get at 7 Park Avenue Financial from clients seeking accounts receivable finance solutions.

 

The answer is simple - when you finance your invoices, the factoring company provides you with an advance on the invoices as soon as you make the sale and issue an invoice -.

 

The amount advanced from factoring companies is usually in the 90 percent range, and you receive the balance of the invoice amount when your client pays—less a discount fee of 1.5-2% based on collection terms of 30 days. Therefore, it's important to negotiate as large an advance rate as possible.

At 7 Park Avenue Financial, we forgive clients confused by all the terms the industry uses in invoice factoring, such as - recourse, non-recourse, non-notification, confidential receivable financing, invoice discounting, maturity a/r finance, etc!  You are forgiven!

 

 

Unraveling the Cost Conundrum: Navigating Factoring Expenses

 

 

The bottom line? A/R Financing  fees from factoring companies are an expense - they are not an interest rate in the traditional sense that borrowers might be associated with!

The cost of invoice factoring in the Canadian marketplace revolves largely around the terminology used by the industry to educate (or confuse) Canadian business owners and financial managers.

As usual, part of the confusion results simply from misunderstanding the terminology used by invoice factoring companies. The receivable finance industry works on a 'discount' basis, often confused with an implicit interest rate.

In Canada, the discount rate in invoices, factoring that your receivables are purchased/financed, is typically in the 1 -1.5 % range. Sometimes, it's more, sometimes less, but for today’s purposes, let's use just a 2% example.

 

Several factors can influence that rate; the customer can influence some, and others remain the same.

 

They include:

 

  • Who you are dealing with is a key issue. Focus on dealing with a reliable firm. At 7 Park Avenue Financial, we pride ourselves on our industry reputation.

 

  • The type of receivables funding you are looking for - i.e. recourse/non-recourse, credit insured, confidential facility - We strongly recommend confidential invoice financing to clients, allowing them to bill and collect their receivables.

 

  • The overall credit quality of your company and your receivables- Companies with a strong credit quality receivable base are more appealing than higher-risk receivables

 

  • The type of industry your firm is in—for example, firms in the construction industry are difficult to finance or factor simply because their receivables are sometimes subject to disputes and even construction liens. The auto industry was extremely out of favour once. Financing a General Motors receivable was actually... difficult  - How things have changed in a few years! But that is business, right?

 

  • The size and number of invoices your firm might have daily. Although it's 100% achievable to finance a receivables portfolio comprising numerous small invoices, this requires more work and administration from your chosen finance partner.

 

Set-up and legal fees—A Business Receivables Funding arrangement via a factoring company is the same as any other business financing arrangement. It has associated legal documentation and set-up fees. These are typically quite nominal, though.

 

 

Most of the confusion about the cost of factoring in Canada revolves around clients' taking the actual discount rate, in our example, 2%, and equating that to a financing rate. They quickly multiply that by 12 months a year and feel they are charged a very high 'interest rate'.

 

That is a poor way to look at it. Why? Let's illustrate by example. More often than not, your suppliers offer you a 2% discount rate to pay their invoice early. You could use the logic that your supplier is losing over 72% per annum for allowing you to pay promptly. Yes, your supplier has self-factored the invoice you have from them.

 

The bottom line is that you have to view the cost of factoring as a price for using funding, not an implicit interest rate. Business receivables funding from a factoring company is a solid solution for companies seeking SME COMMERCIAL FINANCE and cash flow solutions, which can afford a reduction in gross margin of 1-1.5%.

 

Companies use business receivables funding to accelerate cash flow and access immediate cash flow for funding day-to-day operations such as payrolls, fixed costs, inventory purchases, etc.

 

Critical Insights into Business Receivables Funding

 

KEY POINT—Business receivables funding is not a loan and does NOT add debt to the balance sheet; it adds cash to the balance, which you can see as part of your 'current assets'!

 

Technically, invoice factoring is not a business loan. Invoice factoring via receivable finance provides an advance on payments for outstanding invoices. This way, you can have the working capital to reinvest in operations and growth sooner than you could if you waited for your customers to pay you.

 

There are many benefits to business receivables funding in Canada as a solid alternative to accelerate cash flow, grow your company, etc.

 

 

Key Takeaways 

 

 

  1. Invoice Factoring: Leveraging accounts receivables to obtain immediate cash flow by selling invoices to a third party.
  2. Working Capital Acceleration: Speeding up the cash conversion cycle to enhance liquidity and support day-to-day operations.
  3. Accounts Receivable Financing Involves Using unpaid invoices as collateral to secure financing from the financing company, enabling businesses to address short-term financial needs.
  4. Factoring Fees: Costs associated with receivables financing/invoice factoring services, typically comprising discount rates and setup fees.
  5. Cash Flow Management: Strategies to optimize cash flow within a business, including efficient invoicing and timely collections via the accounts receivable loan solution

 

 

Conclusion

 

 

Call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor who can assist you with business financing solutions based on your needs and clarify the actual cost of factoring in Canada via business.

 

 

FAQ: FREQUENTLY ASKED QUESTIONS  / PEOPLE ALSO ASK / MORE INFORMATION

 

What are the benefits of Business Receivables Funding?

Business Receivables Funding offers immediate access to cash flow, accelerates working capital, enhances financial flexibility, and does not add debt to the balance sheet - i.e. debt free financing that comes with financial flexibility - It's a solid alternative to a business line of credit if that is not available to fund a company's accounts receivable for cash flow management.

 

 

How does accounts receivable financing work?

Invoice receivable factoring involves selling unpaid invoices to a third-party factor at a discounted rate in exchange for immediate cash. The advantage is that you receive the money from the invoice factoring company before the company pays.

 

 

Is Business Receivables Funding suitable for small businesses?

Business Receivables Funding is ideal for small business owners looking to improve cash flow, manage expenses, and seize growth opportunities without additional debt. Factoring is a subset of the asset-based lending solution in Canada, and accounts receivable financing allows a small or new business to fund operations and growth.

 

 

What are the typical costs associated with factoring fees in accounts receivable AR finance?

Accounts Receivable Factoring fees usually include discount rates, setup fees, and occasionally legal fees, depending on the arrangement with the factoring company.

 

 

Can I maintain control over my accounts receivables with Business Receivables Funding?

Yes, with confidential invoice financing, you can retain control over billing and collecting your receivables, ensuring confidentiality with your clients.

 

 

How does Business Receivables Funding differ from traditional bank loans?

While traditional bank loans involve borrowing a lump sum with interest, Business Receivables Funding leverages unpaid invoices to access immediate cash without accruing debt.

 

What industries benefit most from Business Receivables Funding?

Industries with steady invoicing cycles, such as manufacturing, distribution, and professional services, often benefit the most from Business Receivables Funding.

 

Are there any risks associated with invoice factoring?

While Business Receivables Funding offers numerous benefits, risks include potential strain on customer relationships and higher costs than traditional financing options.

 

 

' Canadian Business Financing With The Intelligent Use Of Experience '

 STAN PROKOP
7 Park Avenue Financial/Copyright/2024

 

 

 

 

 

Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil