YOUR COMPANY IS LOOKING FOR A/R FINANCING!
Canadian Accounts Receivable Financing Via Factoring Companies In Canada
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Financing & Cash flow are the biggest issues facing business today
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Receivable finance solutions that are offered in Canada (there are several types) are a valuable strategy for companies looking for alternative finance solutions when traditional financing is not available. Typically when we are talking about traditional financing we are talking about Canadian chartered banks of course! The alternative - Factoring companies !
A/R Financing Is Not A Loan
So what do the business owner and financial manager need to know when it comes to invoice financing and complementary cash flow strategies? For a starter A/R financing is not a loan per se, your firm is of course simply monetizing one of the main current assets on your balance sheet. So while some may term it a ' receivables loan ' it is not truly a loan per se.
THE NEW WORLD OF ALTERNATIVE FINANCE
Years ago we venture to say that many business owners were not aware of alternative finance strategies. That of course also means that many of the benefits derived from factoring or Confidential Receivable Finance finance solutions. At 7 Park Avenue Financial, we always strive to ensure our clients understand the various options available to meet their unique individual needs.
Our Canadian banks of course do not tout the benefits of accounts receivable financing/factoring if only for the reason they do not offer this type of financing. That has sometimes tended to create an image that firms utilizing factoring finance are financially challenged. That's very wrong - in fact business folks might be surprised to know that some of the largest companies in Canada utilize this for cash flow financing - in some cases they call it by a fancier name - Securitization.
Alternative finance solutions almost always cost more. Important to understand though that actual factoring of invoices tends to not be priced at an interest rate, as opposed to a selling cost of margin reduction - typically 1-2% for companies who have good-paying clients.
AN EXAMPLE OF A/R FINANCING / FACTORING
How Invoice Finance Companies Work -
Example - On a $ 10,000 invoice you would have a cost of $200.00 to finance the invoice. The benefit? Cash is available immediately after you invoice and ship / provide your service.
So our take away here of course is that a/r finance pricing is in fact a huge stumbling block to many clients, but only when they don't understand it.
A/R Financing only works when you have sales, so firms that are in severe distress or have seriously declining sales rarely are encouraged to utilize this method of cash flow finance.
Receivable financing solutions typically only work for business to business firms, aka 'B2B'. Firms that sell on credit or cash to consumers are best suited to working capital cash flow loans that monetize future sales based on your historical sales levels. As an example companies in the retail sector can typically achieve a working capital loan of 10-20% of their annual sales.
As we have seen it is easy for clients to misunderstand the ' fee ' in factoring - in our example 200 dollars, and confuse that with an invoice financing interest rate, which it is not. In the concept of invoice purchasing that is important for business owners to understand.
What else is important in the invoice financing area? Simply that choosing a partner firm to access your financing needs.
WHAT IS THE BEST TYPE OF RECEIVABLE FINANCE / INVOICE FINANCING?
If you are looking for the straight goods on which method of invoice receivable finance works best (We favour confidential A/R finance), how pricing is determined, and how the facility works on a day to day basis. There are different types of ' invoice financing ' and business owners should investigate which one will work for their firm.
CONCLUSION
The financing of invoices in Canada is a simple process. You only need to set up facilities that will allow your sales to be converted into immediate cash flow.
Companies should have a respectable ' gross margin' in order to absorb the 1-2% fee charged by factoring companies. Cash received from the financing gis typically used to fund daily operations, not long term investments in your business.
Working capital loans are debt that is supported by your cash flow - while the monetization of your invoices is the process of simply cash flowing your sales with no corresponding debt on the balance sheet - That's a good thing
Factoring Financing, i.e. factoring with receivables is a valuable working capital tool. You want the ability to work with the best factoring companies. Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in crafting the facility that meets your working capital financing needs.
Click here for the business finance track record of 7 Park Avenue Financial Stan Prokop
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