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ACCOUNTS RECEIVABLE / INVOICE FACTORING FOR
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Financing & Cash flow are the biggest issues facing business today
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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
"Cash is king, but receivables are the kingdom." - Unknown
Struggling with cash flow? Trade Receivables Financing could be the solution you've been searching for.
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer Trade Receivables Financing and working capital solutions – Save time, and focus on profits and business opportunities
7 Park Avenue Financial: “Canadian Business Financing with the intelligent use of experience”
Trade Receivables Financing: A Guide to Receivable Finance in Canada
At 7 Park Avenue Financial, we are often asked,' Is factoring receivables a good idea?
The answer is quite easy - if your firm can absorb a discount fee of 1-2% of your sales the cash you generate from financing a/r can eliminate all the problems your firm has had with addressing cash flow and financing working capital.
It is as simple as that! Outstanding invoices for small businesses represent your solution to the business capital search.
Could you underestimate the power of a receivables finance arrangement that generates invoice cash based on your sales and revenue growth?
WHAT IS ACCOUNTS RECEIVABLE FACTORING AND INVOICE FACTORING FINANCING
A/R financing allows a company to enter into an arrangement to sell receivables to a company called a ‘factor’.
A business receives the invoice's value less a ‘discount fee,’ which is often confused with an interest rate.
Invoice financing allows companies to access a significant percentage of their accounts receivable quickly, providing flexibility and opportunities for growth without increasing debt. Working with factoring companies in this way allows a company to generate funding as it sells products and services constantly.
Whatever they may wish to call it, ‘factoring‘, ‘invoice discounting‘, ‘a/r finance’, etc., you might have underestimated this powerful financing tool.
Alternatively, you might have been focusing on other solutions that aren’t available for your firm or don’t bring you the liquidity you need. Let’s explain.
IT'S NOT ALL ABOUT GROWING ASSETS AND PROFITS!
While many Canadian business owners and financial managers focus on growth, assets, profits, etc., they often forget the need for cash to power their companies.
Trade receivables are a key component of a company's balance sheet, providing immediate cash flow for operational and strategic needs.
In many ways, accounts receivable financing, a solution for small businesses (or even a larger corporation), gives the most robust measure of current and future liquidity.
Your creditors, lenders, etc, are always watching you, whether you know it or not, to evaluate the risk of doing business with your firm.
Regarding invoice cash facility, it’s all about short-term financing. You are monetizing assets, i.e. receivables! to create a cash resource for your firm.
Your ability to immediately produce cash from revenue (that’s what factoring does, by the way) allows you to avoid potential problems related to a lack of working capital and liquidity related to the products and services your company sells.
UNDERSTANDING YOUR CASH POSITION, CASH FLOW, AND THE SOURCES AND USES OF FUNDS
In the old days (unfortunately, we remember them!), companies regularly, even without the legal requirement to prepare a cash flow statement, calculated what was known as a ‘source and use‘ of funds.
It would give the business a solid opinion on whether you would be in trouble based on where all the cash was going.
Today, all sorts of financing solutions are available to finance a firm. Some are short-term, and some are longer-term.
Asset-based lending can sometimes be used interchangeably with accounts receivable financing, offering varied interpretations within the financing options available to businesses. ‘A/R’ accounts receivable financing (factoring) is a short-term solution to generate cash flow.
UNDERSTANDING THE KEY RELATIONSHIP BETWEEN CURRENT ASSETS, ACCOUNTS RECEIVABLE, AND CURRENT LIABILITIES
While accountants, commercial lenders, and even banks often use ratios such as the ‘current ratio‘and others to determine liquidity, they don’t accurately measure current challenges in cash flow finance.
A company's accounts receivable can be leveraged to secure loans based on outstanding invoices, providing a crucial link between receivables and short-term capital solutions.
Factoring delivers on the only thing your business needs to survive and grow - Cash!
AN EXAMPLE OF BUSINESS FINANCING GONE BAD!
We’ve used a great example of a U.S. department store called W.T. Grant over the years. Up to the end, things looked great - a huge asset-laden balance sheet, profits (on paper) and sales growth.
The problem? Assets such as receivables and inventories were growing and not being appropriately financed.
In the end, its demise and implosion surprised everyone. However, history tells us that if we had focused on cash flow and asset monetization, including managing unpaid invoices, things would have been a lot different. That’s a U.S. company example, of course, but the Canadian business battlefield is laden with many firms that run out of cash flow.
WHAT IS THE BEST FACTORING COMPANY SOLUTION - HERE IS WHAT 7 PARK AVENUE FINANCIAL RECOMMENDS
If you want to generate enough cash to solve your working capital needs immediately, consider an invoice factoring A/R finance solution.
An asset sale can occur when unpaid invoices are used as collateral, allowing sellers to convert their receivables into liquidity through financing options.
Our recommended facility is a confidential invoice cash facility via a financing company, where you can bill and collect your receivables. It’s a line of credit and can even be combined with inventory finance solutions under an asset-based business credit line.
It is a great way to monetize the balance sheet - receivables financing invoice cash factoring works.
KEY TAKEAWAYS
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Unlocking working capital: Trade Receivables Financing allows businesses to convert outstanding invoices into immediate cash, providing a reliable source of funding.
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Accelerating cash flow: By accessing funds tied up in receivables, companies can better manage cash flow, meet financial obligations, and seize growth opportunities.
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Flexible financing: This solution offers customizable terms and structures to suit each business's unique needs, enabling greater financial agility.
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Improved liquidity: Trade Receivables Financing enhances a company’s overall liquidity, enabling it to navigate economic uncertainties and maintain operational continuity.
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Enhanced competitiveness: Leveraging this financing approach can give businesses a competitive edge, allowing them to outmaneuver rivals and capitalize on market dynamics.
THREE UNCOMMON TAKES ON FINANCING TRADE A/R
Utilizing Trade Receivables Financing as a strategic tool to accelerate growth: By accessing immediate funds from outstanding invoices, businesses can invest in expansion, research and development, or other initiatives that drive long-term success.
Trade Receivables Financing as a hedge against economic uncertainty: In times of volatility, this financing option can provide a reliable source of liquidity, helping businesses weather financial storms and maintain operational stability.
Trade Receivables Financing as a competitive advantage: By leveraging this innovative financing solution, companies can outmaneuver rivals, seize new market opportunities, and enhance their overall agility in the marketplace.
CONCLUSION
Trade Receivables Financing empowers Canadian businesses to unlock the value of their outstanding invoices, transforming unpaid bills into readily available working capital.
If cash is critical to your business (hello??!!), call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you with a receivable finance solution that makes sense for your firm.
FAQ
What is Trade Receivables Financing?
Trade Receivables Financing is a financing solution that allows businesses to unlock the value of their outstanding invoices, converting unpaid bills into immediate working capital.
How can Trade Receivables Financing benefit my business?
By providing access to funds tied up in receivables, Trade Receivables Financing can improve cash flow, facilitate growth opportunities, and enhance overall financial flexibility.
What are the critical features of Trade Receivables Financing?
Key features include customizable financing terms, rapid access to funds, and the ability to scale financing as your business grows.
How does Trade Receivables Financing differ from traditional business loans?
Unlike conventional loans, Trade Receivables Financing is based on the value of your outstanding invoices, not your company’s creditworthiness or collateral.
What industries can benefit from Trade Receivables Financing?
Trade Receivables Financing is versatile and can benefit businesses across various industries, from manufacturing and construction to professional services and technology.
What are the eligibility requirements for Trade Receivables Financing?
The eligibility requirements typically include a stable accounts receivable portfolio, creditworthy customers, and a proven track record of invoice collection.
How does Trade Receivables Financing impact my company’s balance sheet?
Trade Receivables Financing is generally considered off-balance-sheet financing, as the receivables are sold rather than used as collateral for a loan.
What are the typical costs associated with Trade Receivables Financing?
Costs can vary but may include a factoring fee, a percentage of the invoice value, and any administrative or servicing fees.
How long does the Trade Receivables Financing process typically take?
It can be relatively quick, often with funds available within a few days of submitting the necessary documentation.
Are there any industry-specific considerations for Trade Receivables Financing?
Certain industries, such as government contractors or those with extended payment terms, may have unique considerations regarding Trade Receivables Financing.
What are the key benefits of Trade Receivables Financing for Canadian businesses?
Trade Receivables Financing can provide Canadian companies with improved cash flow, enhanced financial flexibility, and the ability to capitalize on growth opportunities.
How does Trade Receivables Financing differ from traditional bank financing?
Unlike bank loans, Trade Receivables Financing is based on the value of a company’s outstanding invoices rather than its creditworthiness or collateral, offering a more accessible financing solution.
What are some everyday use cases for Trade Receivables Financing among Canadian businesses?
Canadian businesses can use Trade Receivables Financing to fund inventory purchases, meet payroll, invest in expansion, or bridge cash flow gaps caused by extended customer payment terms.
What is a Receivables Financing Programme?
A receivables financing programme is a structured financial solution that integrates with existing financial systems to manage accounts receivable efficiently, including terms related to default and recourse options for lenders.
