Receivables Financing: Quick Cash from Your Invoices

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ACCOUNTS RECEIVABLE FACTORING COMPANY SOLUTIONS IN CANADA

Factoring / Canada – these two words, relatively speaking, are new to each other.

What is behind the sudden surge in popularity and usage of this age-old financing concept, which has been in place for hundreds of years worldwide?

Cash Flow Crisis: When Outstanding Invoices Threaten Your Business Survival

Outstanding invoices create dangerous cash flow gaps that paralyze business operations.

You watch receivables pile up while bills demand immediate payment, creating impossible financial pressure.

Let the 7 Park Avenue Financial team show you how Receivables financing eliminates this cash flow torture by converting your invoices into instant working capital, ensuring your business maintains healthy liquidity regardless of customer payment delays.

YOU'VE GOT CHOICES IN ADDRESSING THE CASH FLOW CHALLENGE

First of all, it’s simply a new choice for Canadian business owners and financial managers when it comes to cash flow issues –

They either have been financing their receivables with their bank via bank loans or lines of credit or, in many cases, have been unable, for a variety of reasons, to negotiate such a facility. Factoring firms place little or no emphasis on the business owners' credit history -

it's all about sales and your ability to fund cash flows as sales grow. Good profit margins are always desirable as they help absorb financing costs.

THE NEW PARADIGM SHIFT IN CANADIAN BUSINESS FINANCING

The challenge for business financing in Canada is even more difficult based on a company’s smaller size, coupled with the current challenging business environment of economic and pandemic issues.

If you have the proper facility put in place, Factoring in Canada allows you to provide your firm with virtually unlimited cash flow based on your ability to generate valid receivables on your company's balance sheet as you grow your business.

This is critical for small and medium-sized businesses – they didn’t coin the term ‘cash is king’ for nothing! When it comes to outstanding invoices and finance.

THE CONCEPT OF DEBT FACTORING

While the concept and general practice of factoring in Canada seem simple, once the business owner learns about it.

We feel the greater challenge is to determine the best factoring solution for your firm. That is where an experienced, trusted, and credible financial advisor might be of great assistance.

WHAT DOES FACTORING COST?

Factoring costs vary, and business owners and financial managers can choose between recourse factoring and non-recourse factoring / receivable factoring depending on the level of credit risk they wish to maintain around non-payment issues.

Factoring is priced in terms of a factoring fee, not an interest rate per se. This method of financing is a subset of the broad-based subject of asset-based lending.

Use the 7 Park Avenue Financial team to explain what most factoring companies don't know about many issues. Facilities will vary depending on your client base's size, overall credit quality, and creditworthiness. New customers can easily be added to your facility.

If entered into improperly, Factoring can be very paper-intensive and have significant ramifications on how you run your business and how others perceive your business – by others, we mean bankers, suppliers, and yes, even internal staff.

As you contemplate a Canada factoring solution, you must ensure you have, at a minimum, covered off the basics on funding accounts receivable.

As well as will this solution fix your sales growth and cash flow problem challenges? The ability to get a cash advance as you generate sales is highly desired by almost all small businesses in every industry.

HOW QUICKLY DO YOU RECEIVE FUNDS?

Typically, your bank account is credited the same day or the next day, i.e. within 24 hours latest for approx 90% of the sales invoices/face value invoice amount of the original invoice -

The remaining percentage of the invoice value balance is held back till your client pays. This is a great solution for growing businesses, as you can see.

Your firm clearly should be labour or product-focused – very capital-intensive industries sometimes are not the best candidates for a factoring facility in Canada.

While no one wants to finance a firm that is in somewhat of a ‘death spiral, ‘the exact opposite of that often makes the firm an excellent factoring prospect –

That is to say, you are growing too quickly, with annual growth perhaps much more than the traditional 10% or so that we see in stable commodity-oriented industries in Canada.

Why is that? Simply because growing sales, if managed well, mean growing profits, and traditional financing strategies such as bank lines or working capital term loans are not a good fit for explosive growth firms.

Factoring firms have many software solutions to automate processes via back office support and payments these days, and facilities can often be set up in one to two weeks, for example.

Factoring evolved very quickly in Canada based on the inability of many firms in the SME Sector to access financing.

FACING CASH FLOW CHALLENGES?

Many industries are cash flow and labour intensive and have short-term cash needs around their business model.

A solid example would be freight companies or staffing/placement agencies that require cash flow frequently throughout the month.

A properly set-up factor facility will allow your firm to generate cash flow from your accounts receivable whenever you need it.

Rarely can other types of financing provide immediate cash without bringing debt to the balance sheet.

In many firms, there as seasonal issues, big contracts, and generally what’s known as ‘bulges ‘in normal requirements.

Factoring transactions solutions via receivable financing from factoring companies fit these sorts of bulge needs perfectly.

They are not aware that they are often great candidates for accounts receivable factoring/factor financing (also sometimes called invoice discounting).

Still, they clearly have discovered they are not candidates for traditional bank-type financing that requires solid balance sheets, historical short-term cash flow, and good operating ratios that institutions like the Canadian banks typically look for.

You are also a perfect candidate for Factoring in Canada if you have receivables from large, slow-paying customers.

These larger firms might be good, profitable customers for your business based on just the issue of sales volume, but they clearly tie up your working capital when your firm is not paid in 60 or sometimes even 90 days.

The ability to improve your financial position and meet your own payment deadlines is a top priority for any business. Getting more cash and quick cash is job 1 when it comes to a/r financing.

CASE STUDY

A tech Manufacturer in Ontario faced a critical cash flow challenge when their largest customer extended payment terms to 90 days.

With $180,000 in outstanding invoices and immediate payroll obligations, the owner discovered receivables financing through 7 Park Avenue Financial.

Within days, the company received $144,000 (80% advance rate) against her verified invoices. This immediate capital allowed the business to meet payroll, purchase raw materials for a new contract, and maintain supplier relationships.

The 1.75% factoring fee proved far less expensive than potential late payment penalties and lost opportunities.

CONCLUSION - ACCOUNTS RECEIVABLE FINANCING

Cash flow challenges kill more profitable businesses than competition ever will, which is why smart Canadian entrepreneurs leverage receivables financing to transform their outstanding invoices into immediate working capital.

Factoring is relatively new in popularity in Canada for small businesses, and it is gaining traction quickly. Careful analysis should be spent on whether your firm qualifies for such a facility.

It has to work for you and the lender. If in doubt, and many are, cause anything new can be perceived as complicated –

FAQ: FREQUENTLY ASKED QUESTIONS

Factoring for cash flow is a financing alternative to traditional bank loans. Instead of borrowing money and creating new debt, factoring converts your earned invoices into the immediately usable funds you need, while not being obligated in repayment like other forms of debt, such as term loans.

In a typical transaction, there are three parties: the company that sells its accounts receivables, the factor who purchases those assets and finally, any of their customers. All three must be satisfied for this deal to go through, so you must do everything in your power to make sure they have what they need from both ends!

Receivables financing works best for B2B companies with invoices to creditworthy customers, including manufacturing, distribution, staffing agencies, and professional services firms across Canada.

Receivables financing typically provides funds within 24-48 hours of invoice submission, making it one of the fastest financing solutions available to Canadian businesses.

Receivables financing arrangements vary - some include recourse where you're responsible for non-payment, while non-recourse options protect you from customer default, though rates may be higher.

Receivables financing can be structured as notification or non-notification, meaning ' confidential '.. your customers may never know you've financed their invoices, preserving existing business relationships.

Receivables financing particularly benefits industries with long payment cycles, including construction, manufacturing, staffing, and professional services, where cash flow gaps are common.

Receivables financing serves Canadian B2B companies with outstanding invoices, particularly growing businesses in manufacturing, distribution, staffing, and professional services facing cash flow challenges.

The receivables finance process involves selling your outstanding invoices to a financing company at a discount, receiving immediate cash while the lender collects payment from your customers.

Receivables financing becomes essential when businesses face cash flow gaps due to extended payment terms, seasonal fluctuations, or rapid growth requiring immediate working capital.

Receivables financing is available through specialized factoring companies, alternative lenders, and some traditional banks across Canada, with many offering online applications and quick approvals.

Receivables financing offers faster approval, doesn't require collateral beyond invoices, and provides financing based on customer creditworthiness rather than your business credit history.

Receivables financing typically costs 1-2 % of invoice value, depending on factors like customer creditworthiness, invoice amount, and whether it's recourse or non-recourse financing.

Receivables financing requires copies of invoices, customer credit information, aging reports, and basic business financial statements to verify legitimacy and assess risk.

Receivables financing works with invoices from creditworthy B2B customers, government entities, and established companies with solid payment histories and financial stability.

Receivables financing eliminates collection waiting periods by providing immediate cash against outstanding invoices, maintaining steady working capital for operational needs and growth opportunities.

Receivables financing makes sense when the cost of financing is less than the opportunity cost of delayed cash flow or when businesses need immediate funds for time-sensitive opportunities.

Receivables financing accelerates growth by providing immediate working capital that enables inventory purchases, payroll funding, and opportunity capture without waiting for customer payments.

Receivables financing gives businesses competitive advantages through improved cash flow stability, ability to offer extended payment terms to customers, and resources to pursue larger contracts.

Receivables financing reduces financial stress by eliminating uncertainty around payment timing, providing predictable cash flow, and removing the burden of aggressive collection activities.

Receivables financing/invoice financing enables operational benefits including timely supplier payments, employee retention through consistent payroll, and ability to invest in growth initiatives without cash flow constraints.

Receivables financing from accounts receivable financing companies improves supplier relationships by enabling prompt payments, potentially qualifying for early payment discounts, and demonstrating financial stability that strengthens vendor partnerships and helps in supply chain finance issues.

Receivables financing includes factoring where the lender manages collections, and invoice discounting where you maintain customer relationships while using invoices as collateral for financing.

Receivables financing advance rates typically range from 70-90% of invoice value, with higher advance rates generally carrying higher fees but providing more immediate working capital.

What happens with partial payments in accounts receivable loans/receivables financing?

Receivables financing handles partial payments in the accounts receivable financing agreement by applying them proportionally between the advance and the remaining balance, with specific procedures varying by lender agreement terms.

How does currency exchange affect international receivables financing in a company's accounts receivable?

Receivables financing for international invoices involves currency exchange considerations that can affect funding amounts and costs, particularly for Canadian businesses with U.S. customers.

Receivables financing offers both recourse arrangements where you're liable for unpaid invoices, and non-recourse options where the lender assumes credit risk for higher fees.

Receivables financing approval depends primarily on your customers' creditworthiness, invoice validity, and your business's operational stability rather than traditional credit scores or collateral requirements.

Receivables financing fees typically range from 1-5% of invoice value, often more cost-effective than high-interest merchant cash advances or credit card financing for immediate working capital needs.

Receivables financing requires ongoing submission of new invoices, customer credit monitoring, and regular reporting, creating a continuous financing relationship rather than one-time loan transactions.

Statistics on Receivables Financing

Citations / More Information

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR: 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

Receivables Financing Canada : Invoice Factoring Solutions for Business Cash Flow | 7 Park Avenue Financial

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SMALL BUSINESS RECEIVABLE FACTORING IN CANADA