Distressed Over The Cost Of Receivable Financing? An Accounts Receivables Loan Finance Strategy That Pays Off!

Understanding the Cost of A/R Cash flow Financing


Information on Receivable Financing in Canada . An accounts receivables finance loan might not be costing what you think ! Here’s why!


There has to be something to it, because thousands of Canadian firms employ receivable financing strategies everyday as part of a receivables loan strategy that replaces the traditional ' bank line of credit '.

If we had to identify the two biggest issues around this type of financing, i.e. cash flowing your receivables, it’s first of all the cost, and second of all the daily mechanics as to how the facility works. More importantly the question we think really is ' how can I make the cost of a/r financing work for me, not against me. And we think we can show you how.


Can we all agree that if you don't know how the industry charges and pricing this type of financing you can’t be 100% sure that you're winning with this strategy? And if businesses from start up to Major Corporation employ an accounts receivables loan program then something must be working, right?

So, then, what are the factors that determine A/R finance pricing in Canada. There are several.

Size counts and one factor is often simply the size of your monthly receivable portfolio. As we mentioned, size varies here, and there are firms that finance a few thousand dollars every month and medium sized and larger firms that finance millions, yes millions of dollars every month, with frankly no upper limit on the amount that is financeable if you are working with the right party.

So you can expect overall finance volume to be one factor in the receivable financing puzzle. Another factor is what we can call ' days to pay' or your overall ' DSO ‘, which is the commercial finance term for days sales outstanding. This is a pretty simply but perhaps one of the most key factors in a/r finance , simply because your ultimate financing cost is based exactly on the amount of time if takes for your clients to pay your firm .

Many business owners and financial managers don’t calculate their DSO - our view is that you're in the dark if you don’t know what your average collection period is.

We point out to clients that there is an interesting twist here in that you want to ensure you have a facility that allows you to calculate exactly what the days to pay calculation cost is.

Don't align yourself with anyone that wants to ' round up ' to the next 15 or so days. Illustration: your client pays you in 36 days and your receivables loan accounts agreement specifies pricing increments of 45 days on the transaction. All you are agreeing to is extra costs and you don’t want to be doing that.

We hate to generalize but we can safely say that the discount pricing on A/R financing in Canada is more often 2-3%. If you are paying more than that and you are not an extremely small firm then we suggest you are perhaps overpaying. That’s when its time to speak to an expert by the way - when you cant figure out or understand those charges.

Using our example above a basic 1k invoice would have a maximum financing charge of 30$. And remember, the total beauty and power of receivable financing is that you receive the cash when you make the sale, not 60 days later when you clients pay.

Want a simple but powerful trick? Many clients don’t know that they can finance their receivables at any time after the sale is made. So if one of your best clients pays you in 60 days, consider financing that invoice at the 30 day timeframe. On our above mentioned sample example you have kept the financing cost to 30$.

There are numerous other ways to manage your A/R financing costs .One is simply to understand the ' opportunity cost ' of being able to turnover sales and cash flow more quickly. This isn’t term financing.

Speak to a trusted, credible and experienced Canadian business financing advisor on how you can de-stress over the cost of an accounts receivable loan strategy, and turn this method of Canadian financing into a solid growth and cash flow strategy.





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 7 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing
.Info re: Canadian business financing & contact details :



http://www.7parkavenuefinancial.com/receivables_financing_receivable_loan_accounts.html