Factoring Receivables: A Cash Flow Solution for Canadian Businesses | 7 Park Avenue Financial

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YOUR COMPANY IS LOOKING FOR FACTORING ACCOUNTS RECEIVABLE SOLUTIONS IN CANADA FOR BUSINESS FINANCING! 

RECEIVABLES FINANCING OPTIONS

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        Financing & Cash flow are the biggest issues facing businesses today

                              ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?

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EMAIL - sprokop@7parkavenuefinancial.com 

"Cash flow is the lifeblood of business, and factoring receivables is the transfusion that keeps it flowing." - Robert Kiyosaki, author of Rich Dad Poor Dad

GUIDE TO ACCOUNTS RECEIVABLE FACTORING 

INTRODUCTION

Accounts receivable financing might be one of the fastest-growing ways for your business to generate immediate cash flow and working capital.

A company sells unpaid invoices to a third-party financial firm at a discount for immediate cash. This helps cash-strapped businesses access funds without waiting for customer payments.

Factoring companies often handle collections, reducing the seller's administrative burden.

Thousands of firms in Canada utilize this strategy as a primary method of funding their business. Why? Simply put, when traditional bank financing can't or won't get you there, cash flow factoring solutions deliver. Here's why and how - so let's dig in.

Let’s examine why this business financing strategy works and how you can best assess if a factoring receivable solution is the best choice for your firm.

From Invoice Delays to Cash Flow Freedom  

Waiting weeks or months for customer payments can strangle your business growth and operations. Unpaid invoices pile up while expenses continue, creating stress and missed opportunities.

Let the 7 Park Avenue Financial team show you how Factoring receivables eliminates this waiting game. It converts the invoice's value into immediate cash, so you can focus on running and growing your business rather than chasing payments.

Three Uncommon Takes on Factoring Receivables  

Factoring receivables can serve as a strategic client assessment tool. Factoring companies often evaluate your customers' creditworthiness, helping you identify potential payment risks before they become problematic.

Unlike traditional financing options, factoring can strengthen customer relationships by providing more flexible payment terms while maintaining your cash flow, creating a win-win situation.

Invoice Factoring can function as an outsourced credit department, allowing smaller businesses to access professional accounts receivable management expertise without the overhead of hiring dedicated staff.

WHY IS ACCOUNTS RECEIVABLE FINANCING IMPORTANT  

 We also point out to clients that the Canadian landscape for this type of financing is somewhat different from the U.S. models. After entering such a strategy, one of the most important decisions you can make is simply picking the best partner for your particular needs.

Almost every business study or report nowadays features business owners and financial managers bemoaning the lack of business financing and funding.

ACCOUNTS RECEIVABLE FINANCING VS FACTORING   

Business prospects have improved, but business access to capital has been very slow to catch up.

Most Canadian business owners and financial managers turn to those banks for financing. 

However, if your firm doesn’t have very decent financials or isn't generating profits and operating cash flow, your chance of getting the funding for unpaid invoices you need to run and grow the business is low.

So, we come full circle to how factoring works and why it is a potential solution for your firm.

It works very simply—you sell your invoices, either one at a time, all at once, or periodically at your choice. The key word is selling.

When you sell something, you get cash and factoring receivables is your method of obtaining immediate cash for outstanding invoices.

DO YOU QUALIFY FOR ACCOUNTS RECEIVABLE FACTORING?  

Businesses should be able to demonstrate reasonable invoice procedures around pricing and payment dates for the trade credit they extend to businesses,

Invoices must also represent work and services delivered and provided and due for payment. Any commercial invoices to businesses or governments are eligible for financing.

The personal credit scores of business owners do not play a role in a/r financing.

The complexity of factoring, if we can call it that, is how it works daily within your business model and, more importantly, how it affects your customer base.

Using traditional factoring as our explanation, your firm issues an invoice, and you are advanced approximately 90% of the invoice value immediately, i.e. almost the same day! When your customer pays, you get the rest of our funds immediately, less a financing charge.

ACCOUNTS RECEIVABLE FINANCING RATES- HOW MUCH DO ACCOUNTS RECEIVABLE FACTORING COST?

That financing charge becomes the most crucial focus point for many of our clients, given that factoring rates in Canada range from 1. to 1.75% when you calculate accounts receivable factoring fees.

When clients address the cost issue around accounts receivable financing companies, we point out to them that if they have solid gross margins, can turn over receivables, and can purchase more effectively with the new cash, the cost of factoring inevitably becomes somewhat of a non-event.

This facility provides you with ‘unlimited’ working capital in the long term. A/R financing is a subset of the asset-based lending revolution.

KEY POINT - We strongly recommend Confidential Receivable Financing/Factoring for firms that want to bill and collect their receivables and manage their cash flow needs around their trade credit investment.

In Canada, the challenge becomes finding the firm that works best for you concerning the receivable strategy we have outlined. Many small nuances around how factoring is marketed, explained, and works daily become the bone of contention for our customers.

Other short-term cash flow and working capital solutions are also available in asset-based financing, where 'factoring' is a component.

These include:

Merchant advances for retailers

SR&ED Tax Credit Loans

Non-bank asset-based credit lines combine borrowing power around your total A/R, inventory and equipment.

Case Study Growing Through Factoring

AToronto-based precision parts manufacturer, faced a critical challenge when landing their biggest contract yet. While the $2.5 million order represented a tremendous opportunity, their new client required 60-day payment terms, creating a significant cash flow gap.

Rather than turning down the contract, the company's CEO discovered factoring receivables. Within 48 hours of submitting their invoices, the company received 85% of the invoice value, allowing them to purchase raw materials, hire additional staff, and meet production deadlines.

The results were transformative. The company fulfilled the contract on time, strengthened its relationship with the client, and used the improved cash flow to negotiate better terms with suppliers. Over the next year, it doubled production capacity and increased revenue by 73% without taking on additional debt.

"Factoring receivables wasn't just a financing solution; it became our strategic advantage for growth," commented the CEO. "We've continued using factoring as we've expanded, turning our biggest challenge—waiting for payment—into one of our biggest strengths."

10 Specific Use Cases for Factoring Receivables

1. A manufacturing company lands a major contract with 60-day payment terms but needs immediate cash for raw materials and production costs.
2. A staffing agency must meet weekly payroll obligations while waiting for monthly client payments.
3. A seasonal business needs to purchase inventory during slow periods to prepare for upcoming high-demand months.
4. A growing transportation company requires capital to add new vehicles while waiting for payment on completed deliveries.
5. A construction contractor wins a large project with milestone payments but needs funding for labour and materials upfront.
6. A healthcare provider faces delayed insurance reimbursements but must maintain consistent operational cash flow.
7. A technology service provider delivers a major implementation project with payment scheduled upon completion in 90 days.
8. A wholesale distributor receives a large order from a new customer requiring supplier payments before receiving customer payment.
9. A marketing agency completes projects for enterprise clients with lengthy payment processing systems causing cash flow gaps.
10. A manufacturing company seeking to expand export opportunities needs protection from international payment risks and extended payment terms.

KEY  TAKEAWAYS  

• Advance Rate Fundamentals drive the immediate cash benefit, typically providing 80-90% of the invoice value upfront without waiting for customer payment terms.

• Fee Structure Knowledge helps businesses evaluate true costs, which usually consist of discount rates (factoring fees) ranging from 1% to 5% based on invoice volume and customer creditworthiness.

• Qualification Requirements center primarily on your customers' credit quality rather than your business credit score, making factoring accessible even for newer businesses.

• Verification Processes ensure legitimate invoices through simple documentation checks, preventing potential fraud while maintaining quick funding timelines.

• Recourse vs. Non-recourse Options determines risk allocation if customers fail to pay, with non-recourse factoring offering protection against customer insolvency for slightly higher fees as the factoring company assumes the risk

CONCLUSION - ACCOUNTS RECEIVABLE FINANCING   

As a business owner, you want to increase cash flow and bridge cash flow gaps while reducing potential credit problems. Getting cash upfront rather than waiting for payment is key to successful business cash flows.

Call   7 Park Avenue Financial,  a trusted, credible, and experienced business financing advisor who can guide you through the factoring maze for small businesses relative to price, size of the facility, and, most importantly, how the facility works daily to augment your cash flow and working capital. 

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