How Does Factoring In Canada Provide Working Capital Now For Your Business

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THE PROS AND CONS OF INVOICE FACTORING FOR BUSINESS OWNERS

Factoring in Canada – as a Canadian business owner or financial manager you have heard of this type of financing via invoice factoring companies for your working capital needs - You want more information in two areas:

Naturally, even more important, is receivable factoring via an invoice factoring company right for your firm?

WORKING CAPITAL SOLUTIONS VIA A/R INVOICE FACTORING

SMEs who need constant cash flow to grow turn to A/R factoring in order to access working capital. With AR factoring, the company can get instant funding of an invoice for working capital.

Factoring & receivable financing in Canada is what we would call somewhat ‘fragmented’ as a business or industry. As a result many clients we meet either have entered into the wrong kind of factoring facilities or simply don’t know where to go when they want more information. Because of that, we encourage business people to enlist the aid of a trusted and experienced financing advisor in this area.

Banks in Canada, including some in the big 6 offer this type of financing. We would position that offering as probably the best one in the industry, however, our overall financing volumes must be very large and typically a facility would be at least in the one to two million dollar range, so that does not work for everyone.

HOW DOES FACTORING IMPACT YOUR WORKING CAPITAL?

Debt factoring bridges the cash flow gaps between the time a company generates an invoice for goods or services to the time it receives payment from a client. Levels of accounts receivable are typically the main liquid asset in a business.

Why Do Companies Use Factoring?

Factoring is a great way for businesses with high receivables relative to their sales and who sell on credit to access money immediately instead of waiting until their accounts are collected from customers.

ADVANTAGES OF FACTORING SERVICES

When we refer to factoring we can make the statement it is in the general category of asset based financing – but it’s very specific in that it deals only with your account receivable. The basics of the factoring finance offering are that your receivables are purchased, as soon as you issue them (if you wish). Legal ownership of the receivables is no longer your firm's, but you have the immediate cash flow and working capital by virtue of having sold those receivables.

In our opinion 95% of the factoring in Canada involves the factor firm's role in the billing and collection of your accounts – we don’t necessarily feel that is the best facility for the Canadian marketplace and encourage customers to initiate a facility whereby they get all the benefits of factoring from a financial perspective, but at the same time are able to bill and collect their own receivables. Most Canadian business owners are not looking for what we could call an ‘intrusive‘ financing facility that has their customers interacting with the factoring firm.

Canadian business probably does not realize that factoring, also otherwise known as invoice discounting, is used by thousands and thousands of firms in Canada. It has become more popular for a variety of reasons, one of them simply being that as it gets more difficult to obtain business credit in a challenging financial environment factoring itself offers total solutions to working capital and cash flow challenges. Another key point is that this type of financing has a broader appeal to companies that are either in a start-up phase or growing very quickly and unable to access more traditional working capital.

A true feature of factoring is that it in effect provides you with unlimited working capital. By that, we mean that if you have a traditional banking or term lending type facility it has caps and limits on it, including things such as covenants and other collateral. Since the underlying asset in factoring is just the account receivable, we can make the statement that if your receivables are continuing to grow you will always have the commensurate access to cash flows for all those receivables

Most of the factoring in Canada is done on a recourse basis, so your firm, or your factor partner, has to do some level of due diligence on your customers, although naturally, every Canadian business should be doing that anyway. So if a receivable becomes uncollectible then you need to repay that amount that was advanced on that receivable.

What is a factoring fee?

It's important to note that the company will charge a factoring fee (or discount rate) for the service, often a percentage of the invoice amount as specified in the factoring agreement.This is not an interest rate per se, it is expressed as a fee for the financial transaction when companies wish to obtain cash and are factoring invoices. Talk to 7 Park Avenue Financial on factoring advantages and disadvantages when it comes to pricing and type of facility.

What is the key benefit of factoring?

Using an invoice factor enables businesses to provide constant cash flow funding and ensures that capital is needed to support expansion and day to day operations

WHAT IS THE FACTORING AGREEMENT

Factoring agreements are legal contracts entered into by businesses with factoring companies and define the fees and terms of invoice financing Once an agreement is reached, factoring companies work together with a business in an agreed-upon manner to collect payment for an invoice amount.

CONCLUSION - ACCOUNTS RECEIVABLE FINANCING

If your Canadian business is looking for a traditional factoring accounts receivable model and you don’t have concerns about your customers being notified of your factoring facility, this type of financing will suit you at competitive factoring fees on a factoring transaction.

However, if small businesses wish to maintain total control of their billings, collections, and your interaction with our clients when factoring receivables then consider a true working capital factoring facility – You will have all the funds you need, and your financing will not be transparent to your client base. That’s a great financing solution with competitive factoring fee pricing. Talk to the 7 Park Avenue Financial team about Confidential Receivable Non-Notification finance solutions tailored to your needs in the asset-based lending world.

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

What is working capital factoring?

Commercial finance companies offer a number of different solutions for businesses in need of funding. Working capital factoring is designed to help companies get the funds they require when their liquidity requirements change based on what's happening with sales and expenses in order to satisfy cash flow needs in the cash conversion cycle.

What industries does the factoring industry finance?

Almost any industry selling business to business via trade credit can utilize invoice finance - major users of this financing include distributors, retailers, manufacturers, trucking companies, payroll companies, and construction firms. Cannabis factoring has also become popular.

What is recourse factoring?

Recourse financing means that your business is responsible for the payment of any invoices that are deemed uncollectible. The factoring company does not assume your credit risk. Non recourse financing is also available from a factoring company if a company does not want to assume credit risk.

Is factoring a working capital loan?

Factoring is a working capital financing cash flow strategy. These facilities are not considered a loan or a term loan but provide financing through the purchase of your accounts receivables.

How do factoring companies work?

Invoice factoring is a service that provides an opportunity for businesses to get their accounts receivable funded immediately. Factors purchase your invoices at an agreed-upon value typically in the 85-90% range - The balance of the invoice is paid to the company when the client pays the invoices, less a factoring fee in the 1-2% range.

' Canadian Business Financing With The Intelligent Use Of Experience '

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

Factoring In Canada Working Capital Now | 7 Park Avenue Financial