Trade Receivables Financing: Getting Beneath The Surface Of The Accounts Receivable Finance Challenge

There’s No Mathematical Secret To A/R Financing In Canada

OVERVIEW – Information on trade receivables financing in Canada. Understanding the important aspects of non bank accounts receivable finance


Trade Receivables Financing is sought after more and more as a method of cash flowing accounts receivable in Canada. Is there a mathematical secret to understanding and getting... shall we say... below the surface of this method of business financing? Let's dig in.

Getting business credit in Canada (and being successful at it!) is the ongoing struggle of the business owner / financial manager, particularly in the SME sector. Term loans are not the answer. While there are good reasons to secure long term working capital for your business it’s a fundamental financial principal that the current assets of your business should be financed through short term financing.

If that ' short term financing' doesn't come from a bank, where does it come from then? The answer is commercial finance companies that finance trade receivables. These firms put paperwork in place that allows you to finance (in fact the proper term is ' sell ') your A/R, as you generate sales, to finance your business.

That's simple right? In fact the math is very simple if you understand how the finance firm calculates and advances that financing. Key factors in the whole process include:

The overall ' risk profile ' of your client base

The ongoing amount of your Receivables on a typical monthly basis

The payment history of your clients

Although receivable financing is more expensive than Canadian chartered bank credit in Canada one specific advantage is that your ' advance rate' or ' margining' is generally in the 90% area. That means more liquidity. Note also this is ' same day' financing - as you generate sales those sales are immediately monetized into cash flow - funds being wired into your operating account same day.

In general you can finance any receivable that is less than 90 days old - in some cases a special exception will be made on that timeframe- but most business owners/managers quickly realize that receivables become less collectible when they are older.

Businesses that can't obtain the full amount of financing they need gravitate to A/R financing for different reasons. That might be to leverage .monetize current assets such as A/R to free up working capital. Many clients tell us they prefer trade A/R financing through a non bank entity simply because it’s a more quick and efficient process when it comes to securing approval.

While our recommended AR financing solution is CONFIDENTIAL RECEIVABLE FINANCING ( you bill and collect your own accounts ) we do meet some clients who simple prefer ' old school’ receivable finance

which has your finance firm inserting themselves into the collection process with your accounts.







Are there times when trade receivables financing doesn't work? If your company is in a death revenue spiral no amount of financing will often fix the problem. Growing revenues can hide a lot of problems! Also, there are other complementary solutions to financing current assets - they include tax credit financing, PO/Contract financing, and full scale non bank asset based lines of credit. Bottom line - explore your options!

A/R financing is a multi Billion dollar business in Canada. Explore the options by seeking out and speaking to a trusted, credible and experienced Canadian business financing advisor who will take you below the surface of this financial offering.


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 :


7 Park Avenue = Trade Receivables Financing Expertise







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7 Park Avenue Financial

South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Phone = 905 829 2653

Email = sprokop@7parkavenuefinancial.com

Stan Prokop