accounts receivable factoring financing costs

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Accounts Receivable Factoring Financing Costs In Canada
Don’t Let Factoring / AR Finance Become A True Life Horror Story







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Accounts receivable factoring financing costs in Canada.  For some business owners and financial managers in the Canadian marketplace this issue either was or has the potential to become a true life horror story. Does it have to be... absolutely not! Let's explain.


To put it another way, wasn't it the Beatles who sang ' misunderstandings all you see ...' in their Strawberry Fields tune. That's probably a better assessment of the conundrum some face when addressing the costs, structure and mechanics of factoring in Canada.


So what we are searching for is actually the answer to the question: ' What is in fact the true cost of factoring? And how do we measure calculate and address those costs?


For the majority of businesses in Canada the actual discount rate (clients confuse that with an interest rate) is in the 1.5 - 2% range. That is based on a turnover of accounts receivable in a 30 day period, which in many cases is unrealistic in today’s business to business environment.  This is actually one of the key points in financing receivables in Canada.


The majority, (not all) factor finance firms in Canada, by their nature in effect become your collection dept. when they insert themselves into your business process. If you were to retain control over your own accounts and collections (Yes, Virginia, you can!) and focused aggressively on collecting your accounts you in effect have negotiated one of the most aggressive A/R pricings in Canada.


Furthermore when you factor in all the costs of a bank line of credit including stand by fees, unused facility fees, misc bank charges etc you will find that your total cost to finance in a bank facility is probably quite a bit higher than you may have thought. Also, bank lines are under specified credit limits, and the one of many key benefits of factoring in Canada is that your facility grows in lock step as your company grows.


How do you achieve then the ability to collect your own receivables and finance only the A/R that you choose to finance, when you need to? The answer is a Confidential Invoice Finance facility - one that’s priced aggressively and allowing you the business owner/manager to be MASTER OF YOUR DOMAIN!


So if there is one key point today it's simply that your ability to turnover assets such as receivables effectively reduces your overall financing costs. And the funds you generate from accounts receivable factoring allow you to ship more, sell more, and grow more .. including adding more profits and equity to your business.


Looking for a quick snapshot of all issues affect A/R finance costs in Canada. Quite simply they include:


- The actual discount rate you negotiate


- The holdback on each invoice, which typically should be in the 10% range


- Misc audit, disbursement and wire fees


And, most importantly, a breakage fee should you choose to refinance with another party or financial institutions such as a bank.


Does the industry in Canada do a great job of explaining pricing for this key area of business financing. On balance we would say  ' no ' , so seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your A/R factor financing needs at costs and  a structure that makes sense - for you !


P.S. Don’t forget also that funds generated from A/R finance allow you to stay cash flow positive , take discounts with current suppliers ( reduces your overall cost of financing !) , and allows you to take on business and contracts that otherwise might have to be forsaken .

accounts receivable factoring financing costs

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