YOUR COMPANY IS LOOKING FOR BUSINESS FINANCE SOLUTIONS!
Cash Flow Crunch? How Cost of Receivable Invoice Financing Can Rescue Your Business
You've arrived at the right address! Welcome to 7 Park Avenue Financial
Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
CONTACT US :
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Direct Line = 416 319 5769
Email = sprokop@7parkavenuefinancial.com
Unlocking the advantages of cash flow financing can be pivotal for businesses seeking sustainable growth amidst financial challenges.
Struggling to secure financing for your business? Discover how cost-effective receivable financing can be the solution you've been looking for.
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer Receivable Invoice Financing solutions that solve the issue of taking of business cash flow – Save time and focus on profits and business opportunities
Optimize Your Cash Flow: Understanding the True Cost of Receivable Invoice Financing
INTRODUCTION
Accounts receivable financing can often cause a ' world of pain ' in your business. How does the owner/financial manager overcome the challenge of receivables loan funding? We think we've got it down pat when you need to finance receivables!
Part of the challenge in this critical area of the receivables financing business is knowing who carries the solution to your business financing, working capital and cash flow needs. The reality? It's one of three possible finance providers in this area of Canadian business financing regarding factoring invoices.
BUSINESS FINANCING PROVIDERS
The players? They are:
Canadian chartered banks
Commercial finance companies
Insurance companies (Larger deals - often labelled ' securitization’
In many instances, ' size matters', and the actual size of your facility will dictate a more probable solution.
THE CASH FLOW SOLUTION?
Accounts Receivables Financing Receivables Loan
One of those three entities has access to cash solutions for your needs at a cost and structure that makes sense given your business's financial health. The concept? It could not be simpler—a continuous advance against a percentage of your A/R via the right receivables finance solution. That's what A/R financing is about.
Want to feel relaxed? That relaxing feeling, when it comes to A/R finance and funding via finance with receivables, revolves around the owner/mgrs' wish to bill and collect their receivables.
Banks and insurance firms will let you do that, but many commercial finance companies will insist on some lockbox or notification to your clients of their financing process.
How do Accounts Receivable Loans Work?
A/R financing is not a loan per se, not in the same sense as a term loan, which does add debt to your company balance sheet. Accounts receivable finance allows your company to receive immediate cash as you generate sales and invoice your clients.
Companies, of course, can finance some or all of their receivables at any given time, depending on their cash needs. Factoring costs are expressed as a ' fee ' that factoring companies charge. That fee is typically in the 1.5-2% range, and many clients we talk to at first confuse it with an interest rate calculation—which is incorrect.
TYPES OF RECEIVABLES YOU CAN FINANCE
In our opinion, the receivable financing solution that works best here at 7 Park Avenue Financial is confidential receivable financing. This solution allows you to bill and collect your own accounts while funding your sales on an ongoing basis.
Don't forget that a/r finance does not add debt to the balance sheet; you are simply monetizing your most valuable current asset—receivables.
In the world of accounting, there are a couple of different types of receivables. Occasionally, a company carries a ' note receivable ' or a miscellaneous receivable that might not be related to the company's core business. In the case of A/R finance, we are specifically talking about commercial trade receivables based on sales to your client—that is the A/R that is addressed in commercial factoring solutions.
Naturally, the overall financial strength of your firm will dictate which solution is most attainable.
Companies with stable or growing sales and reasonable A/R quality are the best candidates for business credit lines and factoring solutions.
What issues should the business owner/financial mgr be prepared to investigate, address and discuss when contemplating a financial solution.
HOW ARE FACTORING FUNDING INVOICE FACTORING COSTS CALCULATED
What formula will be used to calculate monthly borrowing capability?
The interest rate or financing cost
Miscellaneous fees
Collateral
Ratios or covenants
Key Takeaways
- Importance of Cash Flow Management: Understanding how maintaining healthy cash flow impacts business stability and growth.
- Invoice Factoring vs. Traditional Loans: Recognizing the differences between these financing options and which suits specific business needs.
- Risk Assessment in Receivable Financing: Evaluating the risks involved in using receivables as collateral for financing compared to a bank loan.
- Fees and Charges Associated with Financing: Be aware of the various costs, such as the actual factoring cost in the factoring agreement, involved in receivable invoice financing.
- Creditworthiness Evaluation: Understanding how lenders assess a business's creditworthiness for invoice financing.
CONCLUSION
There's no question that if your sales revenues are growing, your need for a business credit line via accounts receivable financing will strongly emerge.
The positive cash flow generated from these funding solutions will help you grow future sales and, hopefully, profits.
There are significant benefits to an accounts receivable loan program - not the lease of which is the unburdening of the constant worrying around cash flow and working capital. The ability to invoice clients and know you will have immediate use of cash is a strong advantage sought by every small business owner in the SME sector of the economy.
Knowing that traditional barriers to entry into bank financing are no longer a problem delivers peace of mind to the business owner. In a/r financing, factoring receivables is not about your balance sheet and your firm's credit profile; it's, in fact, all about the general credit profile of your customer base.
Looking to win at the receivables loan game?
Choose to eliminate that world of pain we talked about.
Call 7 Park Avenue Financial, a trusted, credible, experienced Canadian business financing advisor who can assist you with your Accounts Receivable Factoring needs.
FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION
Can receivable invoice financing help improve my business cash flow?
Absolutely. Receivable invoice financing provides immediate access to cash tied up in unpaid invoices, with a factoring company helping bridge cash flow gaps and maintain business operations smoothly.
What are the primary benefits of receivable invoice financing over traditional loans?
Unlike traditional loans, receivable invoice financing does not create debt on your balance sheet. It also offers quick access to funds without the lengthy approval processes often associated with bank loans. Although invoice factoring fees are higher than bank interest rates, this type of funding allows businesses to grow when traditional financing is not available.
How does receivable invoice financing impact my business's creditworthiness?
Receivable invoice financing is based on the creditworthiness of your customers, not your business. Therefore, it doesn't add debt to your balance sheet or affect your credit rating negatively.
What fees are typically associated with receivable invoice financing?
Fees for receivable invoice financing usually include a discount fee or factor fee, which is a percentage of the invoice amount, and possibly additional fees for credit checks and administrative costs. Invoice factoring cost is expressed as a fee versus an interest rate. The cost of invoice factoring is typically between 1-1.5% / month. Any contract termination fees should also be revieved.
Can receivable invoice financing help my business manage seasonal fluctuations in cash flow?
Absolutely. Receivable invoice financing provides a flexible solution to manage cash flow fluctuations by offering access to cash tied up in invoice value , which can be particularly helpful during slow seasons.
How long does it take to receive funding through receivable invoice financing?
The time to receive funding through receivable invoice financing varies depending on the lender and your specific situation. However, in many cases, funding can be obtained within a few days to a week after approval.
What are the eligibility criteria for receivable invoice financing?
Eligibility criteria for factoring companies typically include having B2B or B2G customers with good credit, invoices not already pledged as collateral, and a track record of timely invoice payments.
Can I choose which invoices to finance with receivable invoice financing?
Yes, you typically can choose which invoices to finance based on your immediate cash flow needs. This allows you to tailor the financing to your specific business requirements.
What happens if my customers fail to pay the invoices I've financed?
If your customers fail to pay the financed invoices, you may be responsible for repaying the amount to the financing company. However, some receivable invoice financing arrangements offer recourse and non-recourse options, which can mitigate this risk.
Are there any restrictions on using the funds obtained through receivable invoice financing?
In most cases, invoice factoring companies do not restrict how you can use the funds obtained through receivable invoice financing. You can use the money to cover various business expenses, such as payroll, inventory, or expansion projects.
How does receivable financing differ from factoring?
Receivable financing solutions involves borrowing against the value of outstanding invoices, while factoring involves selling the invoices outright to a third-party factor invoice factoring company which charges a factoring fee.
Is receivable invoice financing suitable for startups or only established businesses?
Receivable invoice financing can be suitable for both startups and established businesses. However, startups may face more stringent eligibility requirements and higher fees due to their limited operating history.
What industries commonly use receivable invoice financing?
Industries such as manufacturing, distribution, staffing, and wholesale trade commonly use receivable financing to manage cash flow challenges associated with invoicing.
What are the potential risks associated with receivable invoice financing?
Potential risks include reliance on customer creditworthiness, customer disputes over invoices, and potential strain on customer relationships if collection efforts are necessary.
How does the repayment process work for receivable invoice financing?
Repayment typically occurs when your customers pay the invoices. The financing company collects the payments directly from your customers and deducts any fees before forwarding the remaining amount to you.
What are alternatives to receivable financing?
Alternative financing options include traditional bank loans, business lines of credit, merchant cash advances, and equipment financing.
How do you compare receivable financing to a line of credit?
Receivable financing involves borrowing against outstanding invoices, while a line of credit provides access to a predetermined amount of funds that can be borrowed and repaid repeatedly, similar to a credit card. Receivable financing is based on invoiced sales, while a line of credit is typically based on a company's creditworthiness and financial health.
How does receivable financing improve cash flow?
Receivable financing improves cash flow by providing immediate access to funds tied up in unpaid invoices. Instead of waiting for customers to pay, businesses can receive a percentage of the invoice amount upfront, allowing them to cover expenses, invest in growth opportunities, and manage day-to-day operations more effectively.
