Cash Flow Challenges Become Your Regular Routine?
OVERVIEW – Information on the cost of factoring receivables in Canada. Invoice finance is currently the most popular method of accessing immediate cash flow finance sales activity
In the movie he has a ' routine ' in life - things are always the same. How then can Canadian business owners and financial mgrs break out of the constant cash flow challenge cycle? Receivable finance is one clear solution to that problem.
As an owner/mgr you know the drill - working capital is tied up in your A/R and inventory. Can invoice financing help untie that capital.
Let's address that issue around the following key points: Exactly what is factoring, what are the benefits for your firm, what does it cost, and how does it work. That's a mouthful, but your understanding of these key issues could be the first step in your better understanding of one of the most popular methods of business financing today in Canada.
Factoring is the method by which you ' sell ' your receivables as soon as you issue them. Selling anything gets you ' cash ' and that's the core premise of factoring. The largest, most successful corporation in Canada also offloads their receivables. They do that under a fancier method - securitization - at the end of the day it’s the same thing - Selling you A/R constantly as you make sales to generate instant cash.
Do you have to sell your receivables? Of course not - you can wait 30/60/90 days for your customers to pay you - but you've been there already and that's not working!
So what then is the main benefit of factoring solutions? Essentially it's unlimited working capital in cash flow as you grow your sales. How can we say unlimited cash flow - well, simply because if you have receivables you will always have immediate cash for them. Cash flow problem solved!
Part of the problem in our clients understanding the cost of factoring is that they view it always as an ' interest rate '. A/R commercial finance firms don't call it that - it is a discount rate. They purchase your receivable (either on, some or all of your invoices) at a discount - That discount in Canada is anywhere from 1-2%. The norm tends to be closer to 1.5 - 2%. So a best case scenario is giving up $150.00 on a $ 10,000.00 receivable.
So who in fact ' qualifies' for this type of financing? The reality is that if you have receivables you qualify! This type of financing covers pretty well every industry in Canada. There seems to be a number of industries that are always using factoring - i.e. trucking/transportation, staffing, security guards, etc - but don't be confused by that point - if you have a receivable, Canadian, U.S. or otherwise , it can be financed - or in our lingo ' sold' and ' cash flowed'. Even international receivables can be financed with a few modifications to the program.
So are there alternatives to factoring? Of course you can arrange more traditional financing via a bank, Canadian credit union, etc. However, that type of financing comes with stringent requirements, including solid financial performance, personal guarantees, other collateral, etc.
A/R finance facilities can be efficiently put in place - the process simply involves a basic application and the documentation to register the facility, in a similar manner that any bank would, i.e. a security agreement on your receivables, etc.
One other key benefit is facility size - at a bank type revolving line of credit you have of course a limit, and you can't exceed that limit .That concept goes out the window with your receivable financing facility because your limit grows lock step with your sales and receivable investment. That's true unlimited financing!
It always comes down to cost and the overall pricing of your facility will depend on several factors - the overall size of your receivable portfolio, its credit quality, how your customers have paid traditionally, etc.
We recently met with a customer who advised us that their total all in rate with a Canadian bank, including the rate and fees for all services, etc, was close to 11-12% when you factor everything in. Let's say your factoring rate was 2% per month. And lets also say you now had unlimited cash to pay suppliers promptly, take prompt payment discounts, and negotiate better pricing.
There really isn't in most cases that much more difference in factor pricing and bank pricing when you weigh in all the comparables.
Speak to a trusted , credible, and experienced business financing advisor who can assist you in determining the best A/R pricing for your firm , and allow you to focus on benefits that you can reap from this growing in popularity business financing in Canada .
Stan Prokop - founder of 7 Park Avenue Financial –
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 13 years - Completed in excess of 100 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 & Contact Details :
http://www.7parkavenuefinancial.com
7 Park Avenue Financial
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Office = 905 829 2653
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.
Stan Prokop
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