What Does Accounts Receivable Financing Mean?
Information on working capital financing in Canada. Solutions such as a/r finance factoring and other forms of ' asset based lending ' are a key source of business credit for thousands of firms in Canada - Why Not Yours?
What is it? At its most basic it is a true form of an asset financing arrangement. Your company uses its receivables as collateral in a financing arrangement. The financing can be on one receivable, all your receivables, and, more commonly, some or all of your receivables on an ongoing basis.
The industry tends to refer to the term 'factoring' as the day to day description of accounts receivable financing.
Factoring or receivable financing allows Canadian business owners to receive immediately, on billing, cash for the receivable. A portion of the invoice is always held back, representing a traditional 'holdback 'plus some of the lenders financing fee. We would point out that the holdback is always paid back to your firm as soon as your customer pays the invoice
The company receives an amount that is equal to a reduced value of the receivables pledged. The age of the receivables have a large effect on the amount a company will receive. The older the receivables, the less the company can expect - Generally speaking, invoices over 90 days can not be sold - therefore no cash flow will result on those items.
Factoring, or accounts receivable financing helps companies unlock capital that is invested in accounts receivables. Accounts receivable financing on some occasions transfer the default risk associated with the accounts receivables to the financing company; this type of facility is set up as a non-recourse facility, meaning the lender or finance firm that is doing your factoring in fact accepts the credit risk associated with the ultimate collection of your accounts receivable.
How does the lender do that - quite frankly the receivable portfolio originated on your customers in effect is 'insured 'by the lender. We will let you guess who pays for that and if it is included in your cost of financing. Yes, you are right, you pay. Typically the cost of such insurance as at least a per cent age or two to your cost of financing.
The Canadian market place is dominated by a variety of firms that will factor your accounts receivable. These firms are either divisions or subsidiaries of large U.S or other foreign countries, or they are smaller Canadian owned, operated and funded firms. Typically the latter type of firm, the Canadian single entity has a difficulty in accessing all the funding it typically might need for a large number of transactions. The factoring business requires a significant amount of capital.
When a Canadian business originates an account receivable financing it is prudent for the company to ensure they understand the over all profile, reputation, and capabilities of the firm that will be financing your accounts receivable. Unless the business owner negotiates a very special type of facility the accounts receivable financing firm generally has a good amount of customer contact with your customer base; they will want to validate your invoices, confirm customer acceptance of your invoice and products and services, and in most cases follow up directly with your customer for payment.
In summary, Canadian firms can increase cash flow by the use of the alternative financing method known as 'accounts receivable financing ', commonly called factoring. Cash is secured for your receivables soon that your customer actually paying for it - As we have pointed out that comes at a cost in both financing cost as well as some level of customer intrusion. Canadian business owners should dutifully look into who they are dealing with, their capabilities and procedures, and possibly utilize the services of a trusted and credible expert in the area to determine their best receivable partner.
7 Park Avenue Financial :
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Office = 905 829 2653
Email = sprokop@7parkavenuefinancial.com
Business financing for Canadian Firms , specializing in working capital, cash flow, asset based financing , Equipment Leasing , franchise finance and Cdn. Tax Credit Finance . Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations .
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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