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Financing & Cash flow are the biggest issues facing business today
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Receivable Finance in Canada. Wouldn't it be refreshing to get some of that 'VILLAGE ELDER advice on the subject of business invoice financing in Canada. We're told that type of advice has a connotation of authority and wisdom from someone qualified to provide such counsel.
There are a number of significant benefits when it comes to receivables financing in Canada. It certainly is becoming more of a mainstream alternative every day in Canada, with thousands of firms considering and using this type of business finance.
A/R financing is the ultimate in what we could call ' short term financing’. And what do we mean by ' short term '. Well it pretty well means ' daily ' as funds are typically advance the day that you generate an invoice. As we have stated in the past a properly constructed facility gives you the option of submitting invoice sales, or not submitting them. Its classic ' pay for what you use ' financing. The bottom line, you're satisfying any immediate needs of your business, which includes of course payroll, supplier obligations, term loan payments, etc.
Most factoring or invoice financing firms tout the fact that you also don't have to make a significant investment in accounts receivable credit and collection given that the financing firm takes over the collection of the account. That allows you to focus on running and growing your company of course.
In our opinion that probably is a good thing, but truth be told our recommended facility is one in which you retain control over your invoices and your clients. We think, if they had the choice, that the majority of clients in Canada would say that want to be front and center in front of their customers, without a third party. That’s why time and time again we find ourselves recommending confidential receivable finance, allowing you the business owner and managers to bill and collect your own A/R.
If there is one obstacle to customers embracing business invoice financing it's definitely a lack of understanding around cost and mechanics. What the business owner has to understand is how to be able to properly assess the cost of borrowing.
Let’s use a quick example; let’s say you're a mfr. and that typically A/R in your industry is collected in 50 days. Let's further assume that your firm's days sales outstanding is closer to 65 days.That of course means that you're typically carrying 15 days of excess receivable investment. Let's use approximately 100k as the firm’s daily sales. That means that you have over 1 and 1/2 Million dollars in what we could call excess A/R - even at bank rates of say 5%, that means you have a total annual extra financing cost of over $ 80,000. That, on top of the 1.5 Million $ you are already over-invested it makes almost 1.5Million in lost opportunity cost!
Our example romanticizes the healthy impact your A/R has on your cash flow if you're not focusing and financing it properly. A/R, next to any cash you have in the bank for your business is your closest liquid asset.
Consider receivable finance as an effective way to monetize that asset. Speak to a trusted, credible and experienced Canadian business financing advisor on how to properly monetize business invoice financing.
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Stan Prokop 7 Park Avenue Financial/Copyright/2020
