In the current economic and business financing environment Canadian business owners and financial managers keep hearing about alternative financing and they want to know how factoring in Canada works . It would help to understand the benefits also!
Clearly factoring in Canada, also called receivable financing, or receivable discounting is a new emerging strategy for business financing in Canada. The reality is that is has been around for only a hundred years! But has become increasingly popular as business owners of small, medium, (and yes, large corporations!) struggle to find methods of financing cash flow and working capital.
Let’s try and clear up some of the myths and mysteries of this method of financing your business. As a business owner or financial manager you have options when you consider asset financing. Let’s focus on the key issue we are considering, which is working capital and cash flow financing.
You can finance your business via a working capital term loan, this is available through really only one source in Canada, and is essentially a cash term loan that is repaid via fixed monthly payments. Naturally this type of financing is ‘debt ‘financing and brings a certain level of debt to your balance sheet and overall leverage. You also have the option of putting in additional equity into your company via your own resources or bringing in an additional partner /owner – This of course tends to dilute your ownership and is not really high on the list of most of our clients!
So, we don’t want to necessarily borrow and incur debt, and we certainly cant or don’t want to dilute ownership. Is there another solution. There certainly is, and that’s financing the assets of your business. In our case we are talking about current assets, receivables and inventory, and for the purposes of our discussion here we are talking receivables.
When we focus on the monetization, or cash flowing of your business we can see the eyes light up in our clients faces, as we are now talking about a financing strategy that doesn’t bring debt to your business, uses your liquid assets for cash flow, and keeps your ownership intact. That clearly is what factoring as an alternative financing mechanism becomes more popular everyday.
Factoring is simply the immediate sale of your accounts receivable invoices, at your option. You have the ability to factor one invoice, several, or all. You remain in control. Using our invoice to cash conversion allows you to immediately pay suppliers, purchase more inventory or product, and continue to generate sales and profits for your business.
Factoring in Canada is not the challenge – the challenge is working with the right factoring partner to make sure you have a competitive rate, and that you have the ability to control the overall process, including customer relationships . Pricing is also a huge discussion point in Canada, and without the use of a trusted, experienced and credible business financing advisor you run the risk of setting up the wrong facility at pricing that does not make sense for your firm.
In summary, factoring in Canada remains one of the most popular financing strategies in Canada – it is not debt per se, you are just liquidating your current assets as you need to. Funds are available instantly the same day you generate your invoice for goods and services, and the overall benefit is that you are in a position to grow sales and profits.