YOUR COMPANY IS LOOKING FOR ACCOUNTS RECEIVABLE FINANCING VIA A FACTORING COMPANY!
INVOICE FACTORING VIA ACCOUNTS RECEIVABLE FINANCE
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Financing & Cash flow are the biggest issues facing business today
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ACCOUNTS RECEIVABLE FACTORING IN CANADA
Small and medium-sized businesses in Canada are almost always facing a financial challenge regarding funding to grow, and yes, even survive. However unfortunate, the reality is that thousands of firms have somewhat limited options to meet the funding challenges of their business.
That's why accounts receivable financing via a factoring company might be the solution for your business finance needs. While most companies are funded through equity (from the owners) and credit lines from a bank , that facility is not available for all firms.
A/R FINANCING IS THE ALTERNATIVE TO BUSINESS LOANS WHICH FOCUS ON TAKING ON DEBT
So why do those thousands of small businesses consider a/r financing from factoring companies as an alternative to term loans, or even the costliest method of financing, giving up part of your owner equity? Simply because they are in a position, with the right knowledge, to utilize, rather... monetize one of the largest, if not the largest asset on the left-hand side of their balance sheet, their accounts receivable via an appropriate type of line of credit.
A/R FINANCING / FACTORING ACCELERATES YOUR CASH FLOW AND DELIVERS IMMEDIATE WORKING CAPITAL
A/R financing speeds up cash flow and allows you to finance growth by monetizing your receivable portfolio, in whole or in part. The process itself is simple; it’s who you partner with and how you structure your A/R financing (and what you pay for it!) that becomes somewhat of a challenge for Canadian business owners and financial managers.
TWO TYPES OF A/R FINANCING - WHICH ONE IS RIGHT FOR YOUR COMPANY
In Canada, two types of financing accounts receivable via invoice finance are available from a factoring company. Under the most common scenario, you ' sell ' your invoices to your factoring company - they advance you the cash pretty well the same day, and they begin a process to collect accounts receivable as they become due from your client.
FACTORING COMPANY ACCOUNTS RECEIVABLE
The other alternative, less common, but our absolute recommended solution, is the same sale of your receivables, but with you doing all the billing and collecting. In both circumstances, there is essentially no limit on the amount of financing you can attain - naturally, you have to have the sales to support that financing, but more often than not, with most clients we talk to, sales isn’t the problem, lender financing is! We call it CONFIDENTIAL RECEIVABLE FINANCING here at 7 Park Avenue Financial.
In both types of financing, you can select recourse or non-recourse financing depending on your a/r credit profile, which industry you are in, etc. Foreign receivables can also be insured.
If we had to say what confuses or concerns most first-time clients in accounts receivable pricing, we would have to put it down to two issues, the cost and the daily mechanics of this financing vehicle.
UNDERSTANDING FINANCING COSTS AND YOUR COST OF CAPITAL
So what's the best way to both understand and justify the cost of A/R finance for a customer receivables loan solution? This is where the 'rubber hits the road,' so to speak.
We can explain it to a client to look at the cost of this working capital from a couple of different angles. One is that you are already carrying accounts receivable, so you have a cost. If the clients are low margin profits to you and taking a long time to pay, that cost is high, often as much or more than the cost of the company's A/R finance.
EXAMPLE OF HOW FACTORING COMPANY ACCOUNTS RECEIVABLE FINANCING WORKS AND WHAT IT COSTS
The other way to look at it is that there is a large value to cash in the ongoing operations of your firm. You can maintain solid relations with suppliers and vendors by paying them promptly, taking advantage of discounts, as well as capitalizing on the buying power of your new-found cash.
A typical discount on, say, a 100k invoice amount in Canada is $ 2,000. Simply speaking, it has cost you $2000, on a 30-day basis, to receive $98,000 for your invoice. When the invoice is paid from your customers, you get the remaining 2000$ less the discount fee/factoring fee transferred to your account!
But, consider this, take that 98k now and negotiate better pricing of, say typically, 3% less on your vendor purchases, and pay your vendor on delivery or via a 2% prompt payment discount.
That combination strategy has saved you 5%, plus, you're ' liquid.' Talk about a winning strategy and finally understand the ' factoring fee ' versus an ' interest rate. '
The time it takes your clients to pay, as well as your monthly volumes, ultimately dictate your pricing on advances in short term accounts receivable financing in Canada.
Businesses have the choice of recourse factoring or non-recourse factoring money solutions, depending on whether they wish to keep or offload bad debt and credit risk on outstanding invoices that come with any business that offers access to their clients for business credit/trade credit.
In a recourse arrangement, the factoring company buys your accounts receivable expects that you will repay them for any invoices they cannot collect. In non-recourse factoring of a/r, the factoring company takes bad debt and credit risk liability associated with a transaction.
CONCLUSION - RECEIVABLES FACTORING IN CANADA
Business owners need to understand the differences between AR financing and commercial loans - A commercial loan is a debt solution to why AR Financing is a cash flow monetization strategy. The factoring process is easy to apply for, and factoring companies' services can quickly determine the value and advance rates on your receivables.
Businesses are not obliged to factor all their accounts; they can do that if they choose or use a selective invoice process for payments. Any business that sells on trade credit can utilize ar financing strategies. Let the 7 Park Avenue Financial team develop the right factoring solution for your business needs.
As we said, the benefits of utilizing a factoring company are quite clear. Unfortunately, the method in which fees and benefits are presented in Canada often lacks clarity to the first-time accounts receivables finance user.
Want clarity on the pricing and benefits of accounts receivable financing in Canada? Talk to 7 Park Avenue Financial, a trusted, credible end experienced Canadian business financing advisor, for info on this innovative small business working capital solution.
FAQ: FREQUENTLY ASKED QUESTIONS
What is accounts receivable financing?
Accounts receivable financing involves a business selling its receivables to a third-party financial company, also known as a factor. The business receives an amount equal to a reduced value of the receivable pledged in advance.
Traditional commercial loans can be tied to restrictions that can render them inappropriate to certain businesses ’ requirements. The advantages of factoring are the most cited advantage: the boost it provides to the business's cash flow, rather than wait the 30, to 60-day grace period many clients choose to pay their bills.
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