The Cost Of Factoring Shouldn’t Be A Hot Potato ? AR Rates And Funding Receivables Is Not What You Thought!

A New Look At Factoring Pricing In Canada

OVERVIEW – Information on the cost of factoring . AR Rates in Canada may not be what they seem when you consider the key issues in funding receivables and sales growth for your company


Does the cost of factoring finance, i.e. AR rates for funding receivables really have to be a ' hot potato ‘?

We don't think so, and here is why.

The cost to finance a receivable of course revolves around the ongoing sale of your A/R at a discount. That discount is essentially the core of our cost perception issue.

Otherwise things are pretty much the same, meaning that in the ordinary course of busines you are still responsible for collecting your accounts in a timely manner, and furthermore, in a worst case scenario, the customer’s inability or refusal to pay your firm still incurs a bad debt for your company. So far so good, right? We should mention that you can get what is known as non- recourse AR finance, but that is obviously a bit more expensive and essentially tied to the concept of credit insurance.

A Finance factor firm is going to look at hopefully the same issues that you look at when you enter into extending credit into your clients - i.e. client references, credit limits, collection history, etc . That's just Business 101 and the reason why large corporation invest hundreds of thousands / millions of dollars into credit and collection departments that will ultimately drive the company’s cash flow and operational results for sales and collections.

Benchmarked against the costs of funding receivables are of course the benefits. They key benefit is pretty obvious; your firm receives cash essentially the same day as you make your sales. You're now in a position to do something that many of your competitors may not be able to do, and that’s to offer terms and credit limits to many of your clients that even your competition might not be able to do.

Second benefit. It's virtually unlimited credit to your firm - you're not going cap in hand to apply or renew Canadian chartered bank lines.

So lets get down to the nitty gritty . The cost of receivable finance. They key point we want to make today is simply that many Canadian business owners and financial managers don't really understand the true cost of what they are paying already , even when they are not factoring . Let’s look at our key example today:

Let's say your firm has a made a $10,000.00 sale and has generated an invoice to your client. Let’s say the customer is very late and pays you in 100 days. If we assume your company can borrow money at today’s rates in the 6% range as an example the cost to carry that receivable, i.e. just wait! is approx. $160.00.

What we have just demonstrated is what is known as the cost to carry a receivable. If your firm had a receivables funding factor facility in place a typical cost to fund that receivable for a 60 day period might be 300.00. With that new found cash that you have obtained immediately you are in a position to take supplier discounts, buy more inventory, generate another sale, and make more profits.

Doing nothing and just waiting for a client to pay, carrying your clients, is obviously not a great thing.

Generally in Canada factors that determine your AR rates and cost of factoring are your sales volumes, average invoice balances, number of clients, and general perception of credit worthiness of your clients and your industry.

Our recommended solution is confidential factoring, which allows you to reap all the benefits we have hopefully noted, with your firm being in control of billing and collections - i.e. no third party involvement.

Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your financial needs when it comes to receivables funding.

7 PARK AVENUE FINANCIAL
CANADIAN RECEIVABLE FUNDING 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 10 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/ar-rates-cost-of-factoring-funding-receivables.html



7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Phone = 905 829 2653
Fax = 905 829 2653
Email = sprokop@7parkavenuefinancial.com





























Stan Prokop