Ode To Alternative Financing . Fixing Your Business Cash Flow Problem
OVERVIEW – Information on Business receivable finance in Canada . Cash flow financing via factoring and a/r financing – explained and clarified!
Cash flow financing is all about clarity and quality of information when Canadian business owners and financial mangers consider business finance alternatives. We've said in the past, and still feel it's true that no other form of finance in Canada is as misunderstood or potentially confusing as business receivable finance.
So does this method of cash flow financing have to be confusing? We don't think so, so let’s recap 12 often asked client questions with a goal of clarity for you, the Canadian business owner. Let’s dig in!
Question 1 revolves around the amount of funds you can expect to obtain in Canada. Typical advance rates for most facilities revolve around the 90% mark if you are dealing with the right party. The balance, i.e. the remaining 10% of your receivables is a holdback that is remitted to you immediately after your client pays. Another key question is facility size, and the good news here is that your facility grows as your sales grow. In general there are no credit limits per se, unlike bank facilities, which clearly have a cap and almost always revolve around annual reviews based on the quality of your financial performance.
Question 2 revolves around the process, i.e. the length of time it takes to set up a facility. We generally advise that it takes approx 2 weeks to set up a proper facility - that is a general guideline. You will know, by the way, very early on in the process if you are approved. After that it's simply a question of documentation. Legal documentation and the paperwork process are very similar to bank financing.
By the way, stop us if you’ve heard us say this before,
Question 3 is the proverbial hot point. Fees and costs. Various factors come into play here, the credit quality of your firm in general (it does not have to be as solid as you think), the size of your facility, the nature of your industry, etc. On balance a solid business receivable finance fee in Canada is 1.5 - 2% if you're billing and collecting on a 30 day term. If your company can absorb a 1 or 2% decrease in gross margins to in effect obtain all the cash flow/working capital you need, that in effect should be your consideration.
Question # 4 revolves around types of receivables that can be financed, The key point here is that only ' business’, i.e. B2B a/r can be financed in Canada, so those companies with a consumer a/r base cannot take advantage of cash flow financing . Any North American receivable can be financed, and if your firm has overseas receivables a credit insurance policy can assist in the financing of those receivables.
Question # 5 revolves around the age of receivables that can be financed. As a pretty general rule only A/R that is under 90 days in age can be financed via this method of Canadian business financing. One can safely assume of course that if you haven’t collected your accounts by that time there is an element of uncollectibility or bad debt in your A/R portfolio.
There you have it. Confusion gone away? We hope so. When considering working capital finance via business receivable financing ensure you've got the right information at hand to make an informed decision. Speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success for your ability to get on track with cash flow finance.
Stan Prokop - founder of 7 Park Avenue Financial –
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Office = 905 829 2653
' Canadian Business Financing with the intelligent use of experience '
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.
Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.