In 2004 I founded 7 PARK AVENUE FINANCIAL. At that time I had spent all my working life, at that time - Over 30 years in Commercial credit and lending and Canadian business financing. I believe the commercial lending landscape has drastically changed in Canada. I believe a void exists for business owners and finance managers for companies, large and small who want service, creativity, and alternatives.
Every day we strive to consistently deliver business financing that you feel meets the needs of your business. If you believe as we do that financing solutions and alternatives exist for your firm we want to talk to you. Our purpose is simple: we want to deliver the best business finance solutions for your company.
Friday, February 13, 2015
Receivables Factoring And AR Financing Canada : Talking Points On A Receivable Loan
Removing The Ouch From A/R Financing Solutions in Canada
OVERVIEW – Information on A/R financing in Canada . Receivables factoring via a receivable loan ( it’s not really a loan ) can work as a short to intermediate term solution for cash flow and working challenges . Costs, issues and how the facilities work is discussed
Receivables AR financing in Canada comes with the perception of an ' Ouch ' when it comes to entering into this type of cash flow facility. But is perception reality in this case? We’re quire sure it isn’t so let’s focus in on the total ' receivable loan ' experience. (By the way, it’s not a loan; you're just cash flowing current assets). Let's dig in.
Whether a business is profitable or struggling back to profitability the issue of liquidity and the ability to meet your obligations is always supreme. The ability to finance your sales via a receivable factoring solution is a solid tool when traditional bank financing can’t be achieved. But the type of facility you enter into, its cost, and how it works is really the ' ouch' factor you need to address to be successful with this type of financing.
While the bank paperwork on A/R financing is done through an ongoing ' assignment ' of your accounts the receivable loan (again, it’s not a loan!) paperwork provides that you are in fact ' selling ‘the receivables you wish to finance.
The biggest ' ouch ' for most clients is that as cheques are collected from your client they are deposited directly into the lenders account, not yours, given you have received the benefit of the cash . Can this process be overcome? It sure can! And that comes via entering into a Confidential Receivable Finance facility that allows you to bill and collect your own accounts. By the way, whether it’s a Canadian chartered bank or your receivable factor firm each of those has a ' lien' on your receivables. That's the collateral for the cash flow.
By the way some of the largest companies in Canada or the world for that matter use these types of facilities. In some cases a fancier name (‘Securitization ' ) is attached to the loan (it’s not a loan - have we mentioned that?!) but at the end of the day it’s the same process - eliminating a/r from the balance sheet and generating cash at the exact same time.
Typically the same type of borrowing restrictions come with this type of financing - with one positive exception. Receivables factoring typically allows borrowing against 90% of your total A/R, while Canadian banks prefer a 75% borrowing base margin. (You’d think they were more conservative or something?!)
Otherwise the following borrowing base has the same rules:
All North American receivables can be financed
Receivables must be 90 days or less current
If you are billing and collecting your accounts on 30 day terms the cost to finance a $10,000 invoice as an example would be in the 200$ range . That 9800$ you receive when you generate a sale can be ploughed back into working capital needs, utilized for purchasing more inventory, or you can get back your 200$ by taking a discount with your own suppliers or arranging better pricing based on volume purchases .
Thousands of Canadian businesses utilize this financing as a ' bridge' back to traditional financial solutions. In fact if your business is growing ' too quickly ' for traditional financing it's often the best solution.
If you want to both remove the ' ouch ' from the receivable loan facility ( it's not a loan ..................) and wish to cover off more talking points on how this facility would work for your firm seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can assist you with your cash flow needs.
Stan Prokop - 7 Park Avenue Financial :
7 PARK AVENUE FINANCIAL = CANADIAN A/R FINANCING EXPERTISE
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