cost of factoring receivable finance company
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Unsolved Mystery? How A Receivable Finance Company Prices The Cost Of Factoring Is  Easier To Understand Than You Might Think!        
Mystery Solved . A/R Financing Pricing explained .. finally!







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Oakville, Ontario
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One of the mysteries of Business financing in Canada would appear to be the cost of factoring receivables from a Receivable Finance Company. Should this issue be as mysterious as the search for UFO’s or Bigfoot? We don’t think so, so let’s explain.


Most busines owners and financial manager who consider this method of financing their sales now the very basic -  the fact that factoring is  simply entering into an arrangement with a receivable finance firm that allows you to monetize or cash flow sales, as you make them . Simple enough, right?


Only a very small handful of issues come into play when you are financing your firm in this manner. The trick though, is your management... and understanding of them! That's where you quickly become a winner or a loser, and we're all for winning. And all of that should not, we repeat, should not be a mystery to you or your firm.


So those issues?  They are as follows - you need to negotiate and understand the concept of the ' advance rate ' which is simply the percentage of funds that you advanced when you generate sales invoices. Typically in Canada that should be in the 90% range... your financing is definitely costing more if you are not getting a solid advance rate. In general the quality of your customer base determines that advance rate, but quite frankly some receivable finance companies have a policy or practice of lowering advances to you to increase their profits. So watch out for that one!


In general most factoring in Canada is done on a  ' recourse ' basis, which simply means that you are responsible to cover any bad debts. You were anyway, so the only way to avoid this is by getting a facility in place which includes credit insurance. Naturally this is a bit more expensive, but we are always pleasantly surprised at the generally low cost of  A/R insurance.


Opportunitycost is a concept that is pretty well always ignored by the majority of businesses who are entering into this type of finance. Why? Simply because there is not direct cost associated with it. but boy is it important for you to understand. That's because your ability to monetize sales over and over again , generating cash on your sale immediately leads to higher profits and better asset turnover, both key concepts that should be considered in your overall cost of finance .


There are usually some modest admin expenses when it comes to entering into this type of facility.  These are nominal and should be understood, but hopefully should not be unreasonable enough to sway your decision to embrace factoring in Canada. But, as we said, make sure you know some of those admin fees. 


Don't forget also that just because you don't finance your A/R via factoring that you aren't bearing a large cost already.  That's because whether you are self financing or in fact have a bank facility you are carrying your clients for 30, 60... even 90 days these days, forcing you to absorb the major cost of financing your A/R.


Who controls one of the major factors inherent in receivable finance? You do! That’s because, for example, that if you are collecting your money in 30 days, as your terms state the cost of financing a $ 100,000.00 invoice is 1500.00 if you have a medium sized facility in place. That seems quite reasonable to us, given that factoring generates all that cash immediately allowing you to almost COMPLETELY! offset your financing cost by taking a supplier discount with your new found cash, negotiating better pricing for goods,   or simply selling more by re investing in new sales and larger contracts.


S0, the cost of factoring in Canada. Is there a mystery to it? Because of the way many present it there sure is .. but there shouldn’t be. Seek out and speak to a trusted credible and experienced Canadian business financing advisor who can assist you with a receivable finance company solution... that works!

cost of factoring receivable finance company

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