Invoice Factoring In Canada Receivable Financing | 7 Park Avenue Financial

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Invoice Factoring In Canada - Answers To These 2 Questions Are Why You Need Invoice Factoring In Canada
Looking At A/R Finance As A Working Capital Solution?



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Considering Receivable Financing in Canada? If you are, your thoughts and answers on two questions should help you out quite a bit when it comes to invoice factoring in Canada.


One of our favourite business writers recently focused on cash flow management and asked the following 2 questions -


1. Does your firm need cash right now?

2. Do you know what your cash balance needs will be a half year from now?


The fact that you are even considering an invoice factoring company/factoring fund in Canada suggests your business might be facing cash flow challenges, or perhaps that you're smart enough to address a future problem now!




The basics of factoring finance are easy to understand - setting up a factoring facility allows you to, at your choice, sell invoices to an invoice factoring company, reducing your receivables and adding immediate cash flow to your balance sheet. The ' sale ' is made via a ' fee, 'not an interest rate. It is typically 1.5-2% - the fee varies via several factors, including the size of your facility, overall quality and collectibility of the receivables, industry credit risk, etc. - As an example, construction industry factoring might be viewed as having more industry risk.

Although some business owners consider the whole process as ' factoring loans, ' the reality is that you are simply accelerating a collected account receivable's cash flow benefits. That ' invoice purchasing ' allows you to turn your company into a cash flow machine at your option.




It's more of a technical issue that shouldn't concern business owners. Still, the paperwork around ' factoring' invoices an agreement to ' sell receivables ' - whereas using a bank credit line as an example, the bank holds security against the receivables because you ' assign ' your a/r to the bank  - Somewhat much ado about nothing.




A/R finance allows you to address what's going on with your firm’s working capital in an immediate manner. And by the way, it puts you in control, which you might not be feeling now when it comes to your firm's overall cash/ business cycle. When we meet and talk to clients quite often, it’s clear they don't necessarily feel in control of their finances.


When you can exert control over your cash with a receivable financing strategy, all of a sudden, the uses of cash seem a lot clearer. You're now able to make or take on new lease payments or perhaps reduce debt in other areas such as account payable. Keeping those suppliers and preferred vendors on the side is important, pretty well all the time!


Let's cover some basics when it comes to invoice factoring in Canada, also known as invoice discounting. First of all, it’s a business-to-business financial strategy, so it doesn't really work in a Business to Consumer environment. (By the way, if you are selling into a retail environment, then a merchant cash strategy which finances future retail sales might work for your firm, but we digress...!)


The costs of receivable financing in Canada vary greatly, and it’s probably our largest discussion point when we [re explaining to clients the benefits and cost of an A/R finance strategy.  What is important here is that you understand that the cost factor around receivable finance, in fact, is costs you are bearing now, except that now you're winning, and the use of this financial solution allows you to win.


What do we mean by that? asks the Canadian business owner. Well, the cost of receivable financing has to be benchmarked against two or three critical points you might not be considering. One is that you are already in the banking business, whether you like it or not, because you are carrying your customers 30, 50, or 90 days already.  Congratulations on doing a great job in growing your client's cash flow - although that’s probably not your goal, right?


Secondly, you are potentially missing the opportunity to grow your business because of the cash flow constraint that invoice factoring in Canada solves.


At 7 Park Avenue Financial, we work with our factoring clients to ensure they understand the fees and cost of a/r financing and how they can benefit from this type of financing; focusing on a prompt collection of your invoices always reduces your costs of financing  - and we are not big fans of misc fees, set up costs, and locked-in contracts.


Our most recommended and successful a/r finance solutions is  CONFIDENTIAL RECEIVABLE FINANCING, which allows you to bill and collect your own invoices and receive all the benefits of traditional, dare we call it  ' old school '  Canadian factoring companies.


If you want to learn more about invoice financing, how it works, what it costs, and the best facility out there when it comes to being 'in control,' then seek and speak to a business financing expert today.


You'll then be able to see clear answers to those two nagging questions: Do you have enough cash today, and will you be able to address your cash needs a half year from now.



Factoring invoices is a solid solution to the cash flow problems of small and medium-sized businesses -  using financing companies in Canada for working capital increases cash, and as cash is added to the balance sheet, no debt is taken on by your company - you are simply monetizing your 2nd most liquid current asset - accounts receivable ( Cash is your most liquid asset !!  ) - In most cases, receivable financing is complementary with other lenders your firm utilizes for banking, loans, leases, etc.


Factoring receivables via a factored invoice program in Canada should not be a confusing situation for your cash flow needs. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your cash flow needs.


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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