Why Factoring Accounts Receivable Is Your Cash Flow Machine
Information on accounts receivable factoring finance solutions in Canada. This type of Canadian business financing solves the cash flow challenge businesses in the small to medium enterprise sector face everyday
We hasten to point out that while receivable factoring , factoring accounts due to your firm is often used by firms that are unable to get traditional financing that some of Canada largest corporations utilize this method of working capital financing to grow . Larger more sophisticated firms might call it securitization, or make it a component of an asset based lending facility, but, bottom lines it is still called factoring.
Canadian firms gravitate to the benefits of factoring as they are significant relative to financial resources they might be otherwise unable to obtain. At the core of the factoring accounts solution is simply the ability of your firm to get a predictable cash flow in place that is, in essence, unlimited. Why is that? Well it is because as your sales grow you create receivables and if you cant financing those receivables with traditional bank lines or working capital term loans you have the option, using receivable financing, of turning those receivables into cash flow at your discretion. So you can factor one receivable, all your receivables, or some of your receivables – you make the call!
Another way you can view this type of business financing is simply that it’s a mechanism to link your sales to your cash flow immediately. Although some view the cost of this type of financing as a deterrent we can say , after discussions with many clients, that most business owners and financial managers don’t understand the true costs of factoring, or , an even better way to put it that they don’t understand the costs of not being able to discount their receivables .
One other critical aspect of factoring is simply that it’s not debt – you are not adding debt to your balance sheet – you are simply monetizing one of your largest and most liquid assets, your receivables. In some cases if we term this type of facility a ‘working capital ‘or ‘asset based lending’ facility an inventory component can also be considered for financing, thereby even further increasing your overall liquidity.
As we said before the true beauty of this type of cash flow financing lies in the fact that it is applicable for companies of all size and type of business. As a result if your business is experience challenges, has tax or lien problems, etc you can still be a solid candidate for this financing.
Understand the basics. That’s what we tell clients when they ask us how factoring work, what are the different types, and how does a business assess the costs. Let’s recap some of those basics. If you have a bank line of credit your receivables are owned by your firm, but they are assigned to the bank, which finances them. In factoring accounts receivable are sold, giving you immediate cash , almost same day, in fact usually the same day . You are then in a position to grow sales and extend credit to customers.
Costs and they way factoring works on a day to day basis should be understood also. Invoices are typically funded in the 90% range, meaning you get 90% of funds for the invoice immediately, the rest is held back. Factoring fees in Canada vary from less then 1% per month to 2-3% per month. Factor firms in Canada don’t view this as an interest rate; they call it a discount fee. We point out to customers that they have potentially the ability to recoup a huge part, if not all of that fee by using funds to take supplier discounts and negotiate better pricing. The biggest bottom line is the elimination of your working capital worries.
In Canada things get confusing because there are many factor firms, some are foreign based, some are Canadian, some are large, some very small and unable to services your needs from a viewpoint of capital you require . In many instances the factor firm will bill and collect your receivables, we are not in favor of that method and strongly suggest you maintain account and customer control by negotiating a facility that allows you to bill and collect.
You have now seen many of the advantages of receivable factoring, and should understand now the basic of ‘how it works’. Speak to a trusted, credible an experienced business advisor in this area to determine how you can be in control of your working capital and cash flow needs.
7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Office = 905 829 2653
Click here for 7 PARK AVENUE FINANCIAL
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.