Canada’s Ultimate Working Capital Combination Alternative Financing Solution - By Stan Prokop - 7 Park Avenue Financial
When business owners and financial managers are looking for financing in today’s challenging commercial financing environment they are in many cases contemplating alternative types of financing outside traditional Canadian chartered bank solutions.
So why are these companies looking for alternative solutions. There is a fairly strong consistent profile that emerges in Canadian firms looking for alternate working capital solutions.
Many companies, despite the difficult 2008 and 2009 financial economic challenges are encountering many opportunities to grow. Yet as those growth opportunities emerge they find themselves challenged by traditional debt to equity ratios and lower tangible net worth’s than are required by traditional financial institutions such as the Canadian banks. We quickly add that if Canadian businesses are enjoying profit, a clean balance sheet, and adequate capital rations they are absolutely candidates for Canadian banks. However, not all firms find themselves in this situation! Instead firms are challenged by bank lines that have been capped or constrained, debt covenants that restrict, and higher cash flow needs due to higher investments in accounts receivable and inventory required to fulfill those great new contracts and purchase orders.
So what’s the alternative? There is a’ triple threat solution’ available to many firms who may not even know this type of financing is available. We will call it the ‘holy grail ‘of working capital financing, because it covers purchase orders, inventory, and accounts receivable. Business owners clearly recognize those as key elements of their ‘operating cycle. That is to say they get an order, they purchase or manufacture product, and convert the sale into an account receivable. That’s the good news; the bad news is that that entire process probably takes 90 days, even more sometimes. Cash flow is needed in the interim!
Customers are turning to factoring or accounts receivable financing as the most immediate and obvious solution to their problem. By partnering with the right firm they convert their receivable to cash the day they are able to invoice and recognize revenue. This same working capital allows the Canadian business owner to strengthen supplier relationships, which is critical in a negative economy. In some cases your firm might be able to, (for the first time ever perhaps?!) To take prompt payment discounts. It might not be obvious to some owners that the ability to take prompt pay discounts can offset a very substantial part of the higher cost of factoring.
We have talked of a combo of alternative financing solutions that are interdependant on each other. Canadian business owners may not necessarily be aware that purchase orders can be financed also. With good purchase orders from solid customers financing can be obtained on the strength of the purchase order itself. This continues to be a relatively unknown financing concept in Canada that is gaining some popularity.
We spoke of receivable financing, a.k.a. factoring, purchase order financing, and let’s not forget the final piece of our puzzle, inventory.
Solid financially stable businesses with bank credit line can in fact obtain inventory financing or margining of their inventory. Many smaller and more ‘frail’ firms cannot, and aren’t aware there is a growing number of inventory financing options. On balance we can say that a reasonable commodity type inventory, (i.e. saleable) can in fact be financing for anywhere from 40 cents to 80 cents on the dollar.
In summary, Canadian businesses that do not qualify for full fledged bank operating lines can choose one, or all three of three different alternative working capital solutions – those being factoring, purchase order financing, and inventory financing. Work with a trusted advisor with experience in these alternative facilities and your firm will have an arrangement that takes your financial success to the next level.
Looking for working capital financing to pull ahead in the corporate race?
Alternative Solutions to Factoring for Canadian firms that require Working Capital - By Stan Prokop - 7 Park Avenue Financial
Canadian firms who sell on credit terms to their customers (that's almost everyone!) require an appropriate amount of financing vis a vis the investment they carry in accounts receivable and inventory .Although the Canadian business owner and financial manager likes to think their firm sells on thirty day terms they of course have the hard reality of continually trying to sell receivables that are 60 and 90 days old.
The classic 'working capital 'gap is a huge challenge for most small and medium sized firms in Canada.
Enter factoring or receivable financing, a k a receivable discounting. This type of financing often becomes the alternative to the Canadian firm that is unable to generate the full amount of bank financing they require for operating lines of credit.
Factoring is of course the alternative to that 'operating line of credit. That type of facility allows you to pay suppliers, employees, etc while you wait for your receivables to be collected. Your receivables are in essence pledged as the collateral for the operating line of credit, or, in our case the factoring facility.
We need to also understand of course that the reason the firm cannot generate a bank facility is the requirements of the bank necessitate strong balance sheets, solid operating efficiencies, and profits and cash flows. Many businesses have challenges in some of those key areas that the bank focuses on.
So, is there a better solution to factoring as we have posed in our article title? The best solution is a true working capital facility of asset based lending facility. This is a non bank facility but operates in much the same manner as the margined bank facility. The facility allows your firm to meet payroll and supplier commitments and is significantly easier to arrange.
One of the main disadvantages of factoring, as perceived by Canadian business owners, is the intrusion that factoring can make into your customer based. Pure factoring along the lines of what is practiced in the United States involves notification to your customers, collection calls by a third party to your customer, etc.
A true asset based line of credit, which we call a 'non - notification' facility, has no level of customer intrusion. Yes this type of facility, similar to factoring, is more expensive than bank financing, but it removes much of the stigma that Canadian business owners associate when they hear the word factoring.
The Canadian market place if very segmented in factoring, receivable financing, and true asset based lines of credit lending. Companies are best served to align themselves with a true business financing and working capital expert who can ensure the optimal facility is originated for your company on your behalf .Working with a trusted financing will ensure you have the optimal rates, structure, and day to day working capital facility that meet your cash flow financing needs.
7 Park Avenue Financial will help you stop jockeying for position in the marketplace, and pull ahead of the pack by securing Mississauga Ontario working capital financing for you and your business. When you work with us, you’re working with financial experts who will coach you toward your end goals – why not take a look at our proven track record right here? It’s no secret that in March and April 2008, we generated above and beyond one million dollars of financing for our clients.
Don’t allow your business to fall behind because of unnecessary problems with cash flow – the strong relationships that we’ve built with senior level management at many respected financial institutions allow us to help you secure the working capital financing you need in a reliable and honest manner. Our relationships with both our clients and our lenders are what allow us to seek out the solutions with integrity, refusing to present cookie-cutter solutions for unique business challenges.
Our experts want to work closely with you to position your business with the right lender that matches your financial needs as acutely as possible. Unlike other financers, we truly want to listen to your personal business challenges, ideas, and goals for the future, and then use those to develop a specialized solution that meets those needs. This is what we believe sets apart 7 Park Avenue Financial in the world of business financing, because we know that you cannot mass-produce quality service like this!
If you’re looking for flexibility and integrity in your Mississauga Ontario working capital financing option, we’re here to show you that it can be done. Our customers come first, and we want to give you the options you need to win in today’s cluttered marketplace.
Thinking about giving us a call, or have a question about how we can work toward success in your business? Why not call 7 Park Avenue today! The right business financing for you is simply a phone call away – allow us to help you secure the capital needed to achieve your goal!
