How to Choose the Best Invoice Factoring Company in Canada

A client once asked us how to go about choosing the best Invoice Factoring Company in Canada. We replied with a question, which was simply, would you prefer in any aspect of your business and personal life to work with an expert, or a non expert. The answer is of course obvious. Experts are good!

If you are looking at alternative sources of financing for your business and don’t feel comfortable in assessing all the options, benefits, and of course the pitfalls we recommend that you seek the services of a trusted, reputable and experience and successful business advisor in this area.

Factoring, also known as receivable discounting, or aka ‘receivable financing ‘is one of the fastest growing parts of business financing in North America. Thousands of firms in Canada factor their invoices and in many cases the firms utilizing this financing are newer firms, perhaps in total start up mode, or in some cases they are established businesses that for whatever reason cant access traditional financing such as a bank line of credit or operating facility.

Although many other types of term financing are available for your business, the use of an invoice factoring company is really the main source of working capital and cash flow for many businesses on a day to day basis. This type of financing works for Canadian business in challenging times (we are just coming out of the 2008-2009 global meltdown) and in good times. The reality is that good times bring strong growth and many businesses are unable to finance strong growth simply because more current assets than current liabilities requires financing – putting it more simply, you nee capital in order to maintain higher levels of receivables and inventory
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The challenge in choosing the right Canadian invoice factoring company is simply knowing how pricing and daily practices and procedures work. It is simply as that.

The true benefit of receivable financing is simply that you receive funds on the same day that you invoice, assuming your invoice is legitimate and goods and services for that invoice can be properly recognized as earned an treated as revenue .
So what do you need to know in assessing the proper factor partner – We can boil the technical pricing issues down to three main issues – they are:

1. How much will you receive as soon as you generate your invoice - practices differ widely in Canada, and you can receive as much as 90% or as little as 75%?
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3. The most widely discussed and mis understood issue is what discount fee you are being charged by the invoice factoring company – Our clients view this as the ‘ interest rate ‘ but you should clearly understand that all dialogue with your financing partner will be in terms of a discount rate .

4. Time to pay – or your average days sales outstanding. Prudent business owners and financial managers know the payment habits of their customers, and of course seek to enforce their own payment terms with their customers to the best of their ability without damaging the client/customer relationship by being too aggressive. Let’s assume you can negotiate a 1% / month factoring discount rate with your invoice factoring company – If your terms are 30 days and your customers pays in 60 –90 days you’re financing costs actually double and triple in the case of a slow pay customer.

In summary, factoring is becoming a very accepted method of financing in Canada. The landscape is dominated by Canadian and foreign owner firms, some are small, some are large, some bring U.S. and U.K. practices to Canada thinking they will work. They work for them but they might not work for your firm.

Experts are good things to have – just as you rely on a good accountant or a good lawyer. Speak to a business financing expert to determine what benefits of factoring work for you, how the financing would work relative to your business model, and which invoice factoring company is the best fit for your business.

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Stan Prokop - founder of 7 Park Avenue Financial - http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 6 years - has completed in excess of 45 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details:
http://www.7parkavenuefinancial.com/invoice_factoring_company_factoring_receivables.html