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Mastering Cash Flow: The Benefits of AR Financing in Canada

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Get Paid Now: A Primer on AR Financing for Canadian Businesses



Introduction: The Power of AR Finance in Sustaining Cash Flow 


Accounts Receivable (AR) Finance serves as a lifeline for Canadian businesses grappling with cash flow challenges, whether these challenges are survival-centric or tied to rapid growth.


This article dives deep into the Canadian landscape of accounts receivable financing as a business financing arrangement. Let  7 Park Avenue Financial shed light on its eligibility criteria, advantages, and how it can be optimally structured for your Canadian business.


Why Receivable Financing  is Crucial for Cash-Strapped or Rapidly Growing Firms


Canadian entrepreneurs and financial executives who find it tough to secure the necessary funds for their businesses can significantly benefit from an AR financing strategy.

This involves converting your company's receivables into immediate working capital. While the focus here is on businesses in "survival mode," the principles also apply to firms in stages of stable operations, expansion, or even hyper-growth, which can be a double-edged sword.



Are You Eligible? Critical Criteria for Setting Up an AR Finance Facility


Eligibility for an AR financing facility depends on various factors. Your receivables should be B2B (Business to Business) on the company's balance sheet to qualify for this financing in Canada. Although consumer-focused receivables can be financed through securitization or merchant advances, AR financing is primarily tailored for commercial transactions.



Geographic Scope of Your Clients 


Your clients can be based in Canada, the United States, or overseas. The flexibility of AR finance ensures that receivables from diverse geographic locations can be effectively leveraged.


Payment Methods and Business Size


Your business must also offer credit terms to clients, as AR financing is unsuitable for cash-based sales. The scale of your operation also plays a role; a general guideline is that businesses with monthly receivables exceeding CAD 100,000 are ideal candidates. There's no upper limit for this form of financing in Canada, accommodating businesses with much larger funding needs.


Portfolio Diversification Matters


Another factor to consider is client concentration. Businesses should have a diversified accounts receivable portfolio. Having a single client dominate your receivables can pose a risk, although solutions exist to mitigate this concern.



Invoice Size Considerations 


Generally speaking, AR financing is more effective for larger invoices. While financing smaller transactions is not impossible, bigger invoice amounts are often more feasible for this facility.


Documentation Requirements


Before launching an AR financing strategy, businesses must be prepared to provide aged receivable reports, financial statements, and information about their business model for due diligence.



Our Top Recommendation: Confidential AR Finance 


For optimal benefits, we recommend pursuing confidential Confidential A/R Finance. This allows you to maintain control over billing and collections while also availing the benefits of immediate liquidity. Though it does require a more rigorous due diligence process, the rewards in terms of cash flow improvement are substantial.




For Canadian businesses facing financial headwinds or looking to grow sustainably, AR financing via factoring companies emerges as a highly effective and flexible tool.


Talk to 7 Park Avenue Financial, a trusted, knowledgeable, and seasoned Canadian business financing advisor, to help establish a facility that aligns with your operational needs and growth objectives for financing capital and the challenge to secure financing.





What exactly is AR Finance? How Does Accounts Receivable Financing Work?


AR Finance, or Accounts Receivable Finance, is a strategy where you convert your business's unpaid invoices into immediate working capital. It’s an excellent way for Canadian companies to alleviate cash flow challenges.


Who is eligible for AR Finance?


Generally, businesses with B2B (Business to Business) receivables are eligible. Your clients can be local or international, but your business must offer credit terms to clients. Established firms can consider an accounts receivable loan via an asset-based lending solution, which combines receivables inventory and fixed assets into one revolving line of credit.

Is AR Finance applicable to startups?


Contrary to popular belief, even startups can establish a fruitful AR financing facility. Though traditional Canadian financial solutions are more oriented toward established entities, startups can also avail themselves of these benefits to achieve working capital  before their customer pays


Accounts receivable factoring isn’t restricted to established businesses. Small business owners and startups can also leverage invoice financing strategy to improve their cash flow based on invoice value - with lender advances for invoice factoring typically providing immediate cash in the 85-90% range for the company's accounts receivable.


What are the benefits of Confidential AR Finance?


Confidential AR Finance via accounts receivable financing companies allows you to control your billing and collect payment via your collection processes, offering you more discretion while still providing the cash flow benefits of regular AR Finance as the company sells invoices and the factoring company pays.

Companies can, therefore, also take advantage of early payment with their suppliers, which can significantly offset the cost of financing/factoring fees.


What size of business benefits most from AR Financing?


While there's no upper limit, businesses with total monthly outstanding invoices exceeding CAD 100,000 are generally ideal candidates for Accounts Receivables Finance in Canada. There is no restriction on invoice amount, and this monetization of balance sheet assets is collateral free financing.


How quickly can I access funds through AR Finance?


With Accounts Receivable AR Financing, the speed at which small businesses and SME's can access funds via these receivable loans is often much quicker than traditional loans or lines of credit. Approval and fund disbursement from the factoring company can sometimes occur within 24 to 48 hours after verifying the receivables.


Are there any industries that particularly benefit from AR Finance?

Accounts Receivable financing advantages are versatile and numerous,  but it’s especially beneficial for industries with long invoice cycles, such as manufacturing, wholesale, and logistics. Service industries that bill clients after the service has been provided can also greatly benefit from this financing company solution.


Can AR Finance help me if my business is seasonal?

AR Finance is particularly useful for seasonal businesses that experience cash flow fluctuations. You can maintain consistent cash flow, even during off-season periods, by monetizing your receivables.



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Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil