Business Cash Flow Financing – Explained !
Information on financing cash flows via factoring accounts receivable in Canada . Key facts for Canadian business owners and managers .
Financing Cash flows in Canada. Are there some key ingredients to factoring accounts receivable that can help your firm achieve financial success? We think so, here why... and how.
It's important to understand what the finance folks call your ' cash flow drivers ' . A tool such as factoring receivables literally forces you to manage and maximize working capital success.
Most business owners and financial managers know that cash flow becomes somewhat of an ' up and down ' business. That’s the true fact that many find difficult to challenge.
Receivables finance in Canada isn't cheap (we also believe it’s not that expensive by the way ') and when your firm utilizes this financing mechanism you will do much better if you focus very daily attention to your use of this finance tool. We point out by the way that many senior executives in some of the largest corporations in the world have Days Sales Outstanding as a key metric on which they are both measured and compensated. Surely that says something about how shareholders view the importance of business working capital.
We find it very interesting that small and medium sized business owners are constantly challenged to receive payment from their larger, well known, can we call them ' blue chip ' clients. These same accounts provide a lot of businesses with the majority of their revenue, but at the same time they pose great challenges in collection. They are also the perfect accounts for factoring accounts receivable, as they are both larger in dollar size and credit worthy.
Inventory. Inventory? Why are we talking about inventory when our subject is financing cash flows? Simply because inventory management is a key ingredient in the cash flow cycle, and that inventory flows into accounts receivable, which are in turn financed by factoring.
We're always debating, with our peers or clients, whether we're in a credit crunch .Whether that’s the case or not every business typically runs into what can only be described as uncertain financial times. And financing cash flows via factoring allows you to pay vendors, grow your business, and meet daily obligations to your other lenders. It's different from bank financing if only for the simply fact that the bank is lending your firm money directly, while your factoring partner is simply financing your sales on a daily basis, with a focus on your A/R as the asset financed. They in fact purchase that asset by virtue of their agreement with you.
Yes, bank financing is in fact ' cheaper ' but in many ways it’s a poor comparison because you have more operating freedom when you're financing cash flows via factoring. A larger more financeable firm might search out more equity or working capital term debt to grow, but the SME business owner in Canada has the option to utilize factoring accounts receivable. Oh and by the way, financing cash flows is always cheaper than equity!!!!
A key ingredient in receivable finance success is good gross margins. Simply speaking, you need them and factoring works best when you're well above the ' BREAKEVEN' sales level where sales minus cost of sales plus the cost of factoring is in fact a positive number. That's a key ingredient to a successful working capital solution.
It's no secret that factoring accounts receivable is almost never a long term multi year solution. It can be... but usually isn’t. View it as your bridge to financial success.
Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in identifying your ' key ingredients ' to factoring success.
7 PARK AVENUE FINANCIAL
CANADIAN CASH FLOW FINANCING EXPERTISE
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/factoring_accounts_receivable_financing_cash_flows.html
Accounts receivable financing makes sense in certain situations and can certainly be a life saver at times. I’ve seen a couple solid businesses get strap for cash while waiting for some large pending receivables, and they gave up some ownership to some investors to help with the cash flow problem when they should have just done some sort of account receivable financing.
ReplyDeleteYes, absolutely , thanks for taking the time to read my BLOG all the way over in the U.K.
ReplyDeleteStan