Inside The Hunt For Effective Cash Flow Financing For SME Commercial Finance Needs
OVERVIEW – Information on account receivable financing in Canada . This type of working capital / cash flow financing is often the perfect solution for running and growing businesses in the SME sector
Could account receivable financing help your firm? The dramatic rise of small business financing in accounts receivable (by the way, Canada's largest corporations use this tool also - they just call it something different!) is simply a case of companies such as yours wanting to capitalize on the working capital and cash flow that is, in effect, locked up in receivables Let's dig in.
It doesn't take rocket science for any business owner of financial manager to figure out that if his or her firm has investments in receivables and inventory then those assets, typically called ' current assets' requires financing in some form! Of course you can ' self finance ' - meaning simply wait for your inventory to turn into receivables, and then wait probably even longer for A/R to turn into cash.
The downside? That potentially forces you to give up on sales opportunities and challenges the very core of your financial health, given that we all agree cash flow is king - right?
If you are fortunate enough to be financing via a Canadian chartered bank you are of course familiar with ' collateral '- our banks do a great job of explaining that to you! Why don't you use your own firm's collateral, its assets, mainly accounts receivable, and monetize that asset into cash.
Clients are often fairly clear on the benefits of account receivable financing, which is also called invoice discounting or factoring. So how does that whole process work?
One you have such a facility set up it quite frankly is one of the easiest and quickest ways to unlock cash flow and working capital on a daily, weekly, or monthly basis. The power to choose your timeframes remains with yourself. And by the way, you only pay for the financing you are using. Let's get back though, to how it works.
In Canada there are two types of factoring, we'll focus on the most common one, which, by the way, isn't exactly our favorite (there is a better one) but let's keep it simple for now.
After your firm generates an invoice you submit it to your factor firm partner. That could be once invoice, several, or many or all. Funds for those invoices are wired, or sent to you, that same day into your account. Didn't you just feel your cash flow being totally unlocked and flowing?! Approximately 10% is held back as a buffer, but as soon as your client pays you get those funds back also, less what is known as a discount fee, typically between 1 and 2 %.
2% you say! Isn't that expensive for small business financing? Absolutely, positively maybe, but we actually don't think it is. That is because all in rates from your bank when you total up all the fees, services, standby fees etc often total to a range a lot higher than you might think.
And furthermore, if you take the huge amount of cash you just receive and use it to purchase more efficiently, or takes discounts on supplier invoice payments you make your total cost of capital goes down . And, another point, if you are in a competitive environment, (who isn't) does your ability to have unlimited cash flow put you steps ahead of your competition? We think it does.
There are a number of ways to finance your business. If your firm has A/R assets and you are challenged by the timing in which money flows through your business then consider the benefits of account receivable financing. Speak to a trusted, credible, and experienced business advisor on this popular financing tool for small 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
Email = sprokop@7parkavenuefinancial.com
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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