Factoring in
-How does it work
-What does it cost
Naturally, even more important, is it right for your firm?Factoring in
Unbeknownst to many people there are even banks in
When we refer to factoring we can make the statement it is in the general category of asset based financing – but it’s very specific in that in deals only with your account receivable.The basics of the factoring finance offering are that your receivables are purchased, as soon as you issue them, (if you wish). Legal ownership of the receivables is not longer your firms, but you have the immediate cash flow and working capital by virtue of having sold those receivables.
In our opinion 95% of the factoring in Canada involves the factor firms role in the billing and collection of your accounts – we don’t necessarily feel that is the best facility for the Canadian marketplace and encourage customers to initiate a facility whereby they get all the benefits of factoring from a financial perspective, but at the same time are able to bill and collect their own receivables. Most Canadian business owners are not looking for what we could call an ‘intrusive ‘financing facility that has their customers interacting with the factoring firm.
Canadian business probably does not realize that factoring, also otherwise known as invoice discounting, is used by thousands and thousands of firms in
A true feature of factoring is that it in effect provides you with unlimited working capital. By that we mean that if you have a traditional banking or term lending type facility it has caps and limits on it, including things such as covenants and other collateral. Since the underlying asset in factoring is just the account receivable, we can make the statement that if your receivables are continuing to grow you will always have the commensurate access to cash for all those receivables.
Most of the factoring in Canada is done on a recourse basis , so your firm ,or your factor partner, has to do some level of due diligence on your customers, although naturally every Canadian business should be doing that anyway . So if a receivable becomes uncollectible then you need to repay that amount that was advanced on that receivable.
In summary, if your Canadian firm is looking for a traditional factoring model and you don’t have concerns about your customers being notified of your factoring facility, this type of financing will suit you.
However, if you wish to maintain a total control of your billings, collections, and your interaction with our clients then consider a true working capital factoring facility – You will have all the funds you need, and your financing will not be transparent to your client based.That’s a great financing solution.
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