Accounts Receivable Credit Financing . The Non Bank Financing Difference ! How Receivables Funding Works .. and Doesn’t Work

No Need to Be Naïve About The Difference Between Accounts Receivable Finance and Invoice Discounting And Bank Financing



OVERVIEW – Information on how an accounts receivable finance solution works in Canada . This type of receivables funding is dramatically different from bank financing and being adopted by firms of all size



Accounts Receivable Credit Financing . For the majority of Canadian business owners and financial managers that are considering receivables funding as a finance strategy the main question seems to be:

What is the difference between A/R finance and bank financing for their company? It's a legitimate question, so let’s dig in!

One of the main reasons in fact that many companies choose an A/R receivable credit solution is that is simply doesn't involve new long term financing for your company. The most simple explanation of that difference between a commercial finance solution vs. a bank scenario simply involves understand that the receivables factoring / discounting solution is simply the sale of your receivables, as opposed to the financing of them. Both get you immediate cash flow - they just work a little differently.

On a daily basis the sale of a receivable generates cash flow for your firm. In Canada you typically get 90% of all your invoice the same day you instigate the A/R discounting process. The other 10%, less financing costs of approx 2% is remitted to you as soon as you client pays. Simple so far, right?

That 2% fee in fact becomes larger, commensurate with the time your A/R is outstanding. So don’t be prepared to lull yourself into a fall sense of security on your new cash flow tool, because whether you are holding receivables and waiting, or financing them in an accounts receivable credit factoring situation is still going to cost you money . Carrying balance sheet accounts such as A/R and inventory are a hidden but very real cost of doing business - and the faster you turn over balance sheet accounts leads to great profits and operating efficiencies.

The key advantages of a factoring solution are:

Immediate on going cash flow

Funding as needed for your business if you have seasonality or bulge requirements

A more solid balance sheet that reflects cash, not A/R

It's important to us when we’re in front of clients to maintain a balanced position when it comes to explaining receivables funding. So we do point out that if you enter into the wrong facility (and Canadian companies do that everyday) the actual optics of how people thing you are financing your company can be perceived as negative. It should not be that way, but it is.

Remember also that this method of financing doesn't take away the risk of carrying A/R, unless you have a receivables funding insurance program, which most companies don't. So making proper credit decisions around your clients needs should still be top of mind.

One of the key things to understand in a/r financing is simply that the cost of using this method of cash flow and working capital is a rising and falling process, depending on how much you are drawing down, what that final approximate 90% advance rate is, and the administrative costs you need to run an a/r finance program.

So , no need to be naïve when you weigh the costs of receivables funding vs. bank financing consider seeking and speaking to a trusted, credible and experienced Canadian business financing advisor who can help you set the record straight on those pros and cons of each method of finance.






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 :


ACCOUNTS RECEIVABLE CREDIT AND RECEIVABLES FUNDING





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