Optimize Cash Flow and Fuel Growth with Trade Receivables Financing

 

Financing Receivables: Fast Cash for the Gap Between Invoice and Payment

 

 

"Cash is king, but receivables are the kingdom." - Unknown

 

Introduction

 

Financing receivables can prevent profitable growth from turning into a cash-flow crisis when customers take 30, 60, or 90 days to pay. Drawing on decades of experience helping Canadian business owners convert unpaid invoices into working capital, 7 Park Avenue Financial explains how to assess advance rates, costs, lender risks, and the actual cash your receivables can support.

 

What Does Financing Receivables Mean?

 

Financing receivables means obtaining immediate working capital against valid customer invoices that have not yet been paid. The financing may be structured as a loan secured by receivables, invoice discounting, or the sale of invoices through factoring.

 

Trade Receivables Financing

 

At 7 Park Avenue Financial, we are often asked,' Is factoring receivables a good idea?

 

The answer is quite easy - if your firm can absorb a discount fee of 1-2% of your sales the cash you generate from financing a/r can eliminate all the problems your firm has had with addressing cash flow and financing working capital.

 

It is as simple as that! Outstanding invoices for small businesses represent your solution to the business capital search.

 

Could you underestimate the power of a receivables finance arrangement that generates invoice cash based on your sales and revenue growth?

 

 

Three Uncommon Takes on Financing Trade A/R

 

1. Growth accelerator: Convert unpaid invoices into immediate cash to fund expansion, innovation, inventory, or new contracts.
2. Liquidity hedge: Maintain reliable working capital during economic uncertainty or slower customer payments.
3. Competitive advantage: Use faster access to cash to pursue opportunities, respond quickly, and outperform less-agile competitors.

 

 

WHAT IS ACCOUNTS RECEIVABLE FACTORING AND INVOICE FACTORING FINANCING

 

Financing receivables provides immediate working capital against unpaid customer invoices through A/R loans, invoice financing, invoice discounting, or factoring. Businesses receive an advance minus a discount fee, creating flexible liquidity that grows with sales—often without adding traditional term debt.

 

IT'S NOT ALL ABOUT GROWING ASSETS AND PROFITS!

 

 

While many Canadian business owners and financial managers focus on growth, assets, profits, etc., they often forget the need for cash to power their companies.

 

Trade receivables are a key component of a company's balance sheet, providing immediate cash flow for operational and strategic needs.

 

In many ways, accounts receivable financing, a solution for small businesses (or even a larger corporation), gives the most robust measure of current and future liquidity.

 

Your creditors, lenders, etc, are always watching you, whether you know it or not, to evaluate the risk of doing business with your firm.

 

Regarding invoice cash facility, it’s all about short-term financing. You are monetizing assets, i.e. receivables! to create a cash resource for your firm.

 

Your ability to immediately produce cash from revenue (that’s what factoring does, by the way) allows you to avoid potential problems related to a lack of working capital and liquidity related to the products and services your company sells.

UNDERSTANDING YOUR CASH POSITION, CASH FLOW, AND THE SOURCES AND USES OF FUNDS

 

 

In the old days (unfortunately, we remember them!), companies regularly, even without the legal requirement to prepare a cash flow statement, calculated what was known as a ‘source and use‘ of funds.

 

It would give the business a solid opinion on whether you would be in trouble based on where all the cash was going.

 

 

Today, a variety of financing options are available to finance a firm. Some are short-term, and some are longer-term.

 

Asset-based lending is sometimes used interchangeably with accounts receivable financing, leading to varied interpretations of the financing options available to businesses. ‘A/R’ accounts receivable financing (factoring) is a short-term solution to generate cash flow.

 

How Does Financing Receivables Help Businesses Bid on Larger Contracts?

 

Receivables financing converts unpaid invoices into immediate working capital, often advancing 80–90% of their value. This provides cash to fund the payroll, materials, inventory and supplier deposits required to start and complete larger contracts while customers take 30–90 days to pay.

Because available financing can increase as eligible receivables grow, businesses can pursue larger contracts without relying entirely on existing cash or a fixed bank line. Before bidding, however, the company should confirm that the customer and the invoices will qualify for financing and that the contract’s profit margin covers the financing costs.

 

UNDERSTANDING THE KEY RELATIONSHIP BETWEEN CURRENT ASSETS, ACCOUNTS RECEIVABLE, AND CURRENT LIABILITIES

 

While accountants, commercial lenders, and even banks often use ratios such as the ‘current ratio‘and others to determine liquidity, they don’t accurately measure current challenges in cash flow finance.

 

A company's accounts receivable can be used to secure loans against outstanding invoices, providing a crucial link between receivables and short-term capital solutions.

 

Factoring delivers on the only thing your business needs to survive and grow - Cash!

 

 

AN EXAMPLE OF BUSINESS FINANCING GONE BAD!

 

 

We’ve used a great example of a U.S. department store called W.T. Grant over the years. Up to the end, things looked great - a huge asset-laden balance sheet, profits (on paper) and sales growth.

 

The problem? Assets such as receivables and inventories were growing and not being appropriately financed.

 

In the end, its demise and implosion surprised everyone. However, history tells us that if we had focused on cash flow and asset monetization, including managing unpaid invoices, things would have been a lot different. That’s a U.S. company example, of course, but the Canadian business battlefield is littered with firms that run out of cash.

 

How Existing Bank Security Affects New Factoring Financing

 

A bank usually registers a General Security Agreement under the provincial PPSA, giving it a security interest in the company’s present and future assets—including accounts receivable and their proceeds. If the bank registered first, it generally has priority over a new factoring company.

 

Therefore, the factor normally cannot purchase or finance those receivables until the bank agrees to one of the following arrangements:

 

• Full discharge: The factoring facility repays the bank line, and the bank releases its security over the receivables.
• Specific collateral release: The bank releases only the invoices being factored while retaining security over other assets.
• Subordination agreement: The bank keeps its registration but gives the factor first priority over designated receivables and their proceeds.

 

Why Revenue Growth Can Increase Financing Needs

 

Revenue growth does not always create immediate cash. When sales rise, a business often must pay for inventory, materials, labour and overhead before customers settle their invoices 30–90 days later. The faster the company grows, the more cash becomes tied up in receivables and inventory—creating a larger working-capital gap even when the business is profitable.

For example, a company growing monthly sales from $500,000 to $750,000 on net-60 terms may need to carry roughly $500,000 more in receivables before collecting the additional revenue.

 

 

Compare Financing Costs For Receivable Financing  With the Cost of Doing Nothing

 

The lowest interest rate is not always the lowest-cost decision. Financing costs should be compared with the consequences of insufficient liquidity:

• Missed payroll and damaged employee confidence
• Lost supplier early-payment discounts
• Delayed production and customer deliveries
• Rejected contracts and lost gross profit
• Supplier holds or reduced purchasing terms
• Penalties, rush charges and reputational damage

If financing costs $15,000 but enables a contract generating $60,000 in gross profit, the relevant question is not whether the financing is expensive—it is whether the expected return

 

WHAT IS THE BEST FACTORING COMPANY  RECEIVABLES FINANCE SOLUTION - HERE IS WHAT 7 PARK AVENUE FINANCIAL RECOMMENDS

 

If you want to generate enough cash to solve your working capital needs immediately, consider an invoice factoring A/R finance solution.

 

An asset sale can occur when unpaid invoices are used as collateral, allowing sellers to convert their receivables into liquidity through financing options.

 

Our recommended facility is a confidential invoice cash facility via a financing company, where you can bill and collect your receivables. It’s a line of credit and can even be combined with inventory finance solutions under an asset-based business credit line.

 

It is a great way to monetize the balance sheet - receivables financing, invoice cash factoring works.

 

 

KEY TAKEAWAYS

 

 

• Unlocking working capital: Trade Receivables Financing allows businesses to convert outstanding invoices into immediate cash, providing a reliable source of funding.

• Accelerating cash flow: By accessing funds tied up in receivables, companies can better manage cash flow, meet financial obligations, and seize growth opportunities.

• Flexible financing: This solution offers customizable terms and structures to suit each business's unique needs, enabling greater financial agility.

• Improved liquidity: Trade Receivables Financing enhances a company’s overall liquidity, enabling it to navigate economic uncertainties and maintain operational continuity.

• Enhanced competitiveness: Leveraging this financing approach can give businesses a competitive edge, allowing them to outmaneuver rivals and capitalize on market dynamics.

 

 

 

Case Study

From The 7 Park Avenue Financial Client Files

 

Company: ABC Company — a commercial cleaning and janitorial services provider in the Greater Toronto Area, serving office and industrial clients on 45–60 day payment terms.

Challenge: ABC Company had landed a large contract with a new property management client but faced an 8-week gap between completing monthly service cycles and receiving payment — while still needing to cover payroll for 40+ cleaning staff every two weeks.

How We Got There: 7 Park Avenue Financial structured a spot financing receivables arrangement against the specific invoices tied to the new contract, rather than committing the company's entire receivables ledger. This let ABC Company bridge only the exact gap created by the new client's payment terms.

Results: ABC Company met payroll without disruption, retained the new contract, and wound the facility down to zero once the client's payment cycle normalized — with no long-term debt added to the balance sheet.

 

 

CONCLUSION

 

Trade Receivables Financing empowers Canadian businesses to unlock the value of their outstanding invoices, transforming unpaid bills into readily available working capital.

 

If cash is critical to your business (hello??!!), call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor who can assist you with a receivable financing solution that makes sense for your firm.

 

7 PARK AVENUE FINANCIAL ORIGINATES RECEIVABLE FINANCING

 

FAQ/FREQUENTLY ASKED QUESTIONS

 

What is Trade Receivables Financing?

Trade Receivables Financing is a financing solution that allows businesses to unlock the value of their outstanding invoices, converting unpaid bills into immediate working capital.

 

How Does Financing Receivables Work?

Financing receivables converts approved invoices into usable cash before customers pay. The process generally follows six steps:

1. Your business delivers the goods or services.
2. You issue a valid invoice to a creditworthy business customer.
3. The lender reviews the invoice, aging and supporting documents.
4. An agreed percentage—often 80% to 90%—becomes available.
5. Your customer pays according to the invoice terms.
6. The lender releases the reserve, less financing charges.

A $100,000 eligible invoice with an 85% advance rate would create $85,000 of immediate availability. The remaining $15,000 is the reserve and is normally released after collection, less applicable fees.

 

 

How can Trade Receivables Financing benefit my business?

By providing access to funds tied up in receivables, Trade Receivables Financing can improve cash flow, facilitate growth opportunities, and enhance overall financial flexibility.

 

 

What are the critical features of Trade Receivables Financing?

Key features include customizable financing terms, rapid access to funds, and the ability to scale financing as your business grows.

 

 

How does Trade Receivables Financing differ from traditional business loans?

Unlike conventional loans, Trade Receivables Financing is based on the value of your outstanding invoices, not your company’s creditworthiness or collateral.

 

 

What industries can benefit from Trade Receivables Financing?

Trade Receivables Financing is versatile and can benefit businesses across various industries, from manufacturing and construction to professional services and technology.

 

 

What are the eligibility requirements for Trade Receivables Financing?

The eligibility requirements typically include a stable accounts receivable portfolio, creditworthy customers, and a proven track record of invoice collection.

 

 

How does Trade Receivables Financing impact my company’s balance sheet?

Trade Receivables Financing is generally considered off-balance-sheet financing, as the receivables are sold rather than used as collateral for a loan.

 

What are the typical costs associated with Trade Receivables Financing?

Costs can vary but may include a factoring fee, a percentage of the invoice value, and any administrative or servicing fees.

 

How long does the Trade Receivables Financing process typically take?

It can be relatively quick, often with funds available within a few days of submitting the necessary documentation.

 

 

Are there any industry-specific considerations for Trade Receivables Financing?

Certain industries, such as government contractors or those with extended payment terms, may have unique considerations regarding Trade Receivables Financing.

 

What are the key benefits of Trade Receivables Financing for Canadian businesses?

Trade Receivables Financing can provide Canadian companies with improved cash flow, enhanced financial flexibility, and the ability to capitalize on growth opportunities.

 

 

How does Trade Receivables Financing differ from traditional bank financing?

Unlike bank loans, Trade Receivables Financing is based on the value of a company’s outstanding invoices rather than its creditworthiness or collateral, offering a more accessible financing solution.

 

What are some everyday use cases for Trade Receivables Financing among Canadian businesses?

Canadian businesses can use Trade Receivables Financing to fund inventory purchases, meet payroll, invest in expansion, or bridge cash flow gaps caused by extended customer payment terms.

 

What is a Receivables Financing Programme?

A receivables financing programme is a structured financial solution that integrates with existing financial systems to manage accounts receivable efficiently, including terms related to default and recourse options for lenders.

 

 

 

Statistics

 

• Advance rates in Canadian factoring facilities typically range from 75 to 90 percent of eligible receivable face value MarketResearch.com
• Funding is typically disbursed in 24 to 48 hours versus 30 to 90 days for traditional bank credit approvals MarketResearch.com

 

 

Citations

 

BDC. "Small Business Financing in Canada." Business Development Bank of Canada. https://www.bdc.ca

Factors Chain International. "Global Factoring Statistics." FCI. https://fci.nl

7 Park Avenue Financial."Guide to Choosing the Best AR Receivable Financing Service"https://www.7parkavenuefinancial.com/Factoring-canada-receivable-financing-that-works.html

Prokop, Stan. "Boost Your Business Cash Flow: Accounts Receivable Financing Factoring." Medium. https://medium.com/@stanprokop

Cashbook. “Top 10: Favourite Cash Flow Quotes from Cashbook.” 2021. https://www.cashbook.com/top-10-favourite-cash-flow-quotes-from-cashbook/.

Interac. “Canada’s Entrepreneurs Say Not Getting Paid on Time Hinders Growth.” January 27, 2025. https://www.interac.ca/en/content/business/canadas-entrepreneurs-say-not-getting-paid-on-time-hinders-growth/.

Payments Canada. “A Spotlight on Small Business Payments.” OctMober 29, 2024. https://www.payments.ca/insights/research/spotlight-small-business-payments.

Medium/Prokop."Receivables Financing Exposed: Why Canadian Choose Speed Over Bank Approval".https://medium.com/@stanprokop/receivables-financing-exposed-why-canadian-choose-speed-over-bank-approval-ff36c3e904af

Statistics Canada. “Suppliers of Business Financing Visualization Tool.” Updated May 1, 2026. https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607-x2020002-eng.htm.

 

How To Decide if Financing Receivables Is a Solution for Your Working Capital Funding

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YOU WANT RECEIVABLES FINANCING AND WORKING CAPITAL FUNDING! 

A NEW WAY TO MEASURE WORKING CAPITAL FINANCING NEEDS!

You've arrived at the right address! Welcome to 7 Park Avenue Financial

        Financing & Cash flow are the biggest issues facing business today

   ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?

CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs

Or Email us with any questions on Canadian Business Financing

EMAIL -sprokop@7parkavenuefinancial.com

 

The R R Factor: A New Approach to Financing Receivables & Working Capital Funding in Canada

 

 

Understanding the Receivables to Revenue Ratio (R R Factor) 

 

We call it the Receivables to Revenue Ratio or simply the R R factor. Unlike rest and relaxation, the R R factor will guide Canadian business owners in recognizing the right time to explore advanced methods of accounts receivable financing and working capital funding.

 

The receivable-to-revenue ratio is a financial metric that provides insight into a company's ability to turn its accounts receivable into cash. It measures how effectively a company manages its credit sales and collections and helps alert to negative working capital.

 

Here's how you can calculate it:

 

Receivables to Revenue Ratio = (Accounts Receivable / Sales Revenue) x 100

 

 

Interpretation: What does the Receivables to Revenue Ratio Tell  Business Owners 

 

• Accounts Receivable: This is the amount of money owed to the company by its customers for goods or services that have been delivered but not yet paid for.

• Sales Revenue: The total amount of money the company earns from its products or services sales.

 

Measuring Your Receivables Revenue Ratio

 

• High Ratio: A higher ratio could indicate inefficiency in collecting and converting payments into cash. It may mean that a company is extending credit to customers who are not paying their bills promptly, which can impact cash flow and liquidity.

• Low Ratio: A lower ratio could indicate that a company efficiently converts its credit sales into cash quickly. It may imply strong credit policies and collection practices, ensuring that the money owed is collected promptly.

•  

In short, a receivable-to-revenue ratio is essential in assessing a company's liquidity and cash flow management. It offers insight into how well a company manages its credit policies and how quickly it's turning credit sales into cash. If mismanaged, it could lead to potential cash flow problems and increased risk, mainly if a significant portion of sales are made on credit.

 

The Importance of Calculating the R R Factor

 

Here's a powerful tool that's straightforward and potent in assessing cash flow challenges. It's called the receivables to revenue ratio, and by examining your year-end balance of A/R and translating it into weeks of sales, you'll have a historical perspective on your cash flow and working capital needs.

 

Tackling Working Capital Funding Challenges with Receivables Financing

 

But what does a company do when traditional borrowing for working capital seems daunting? Increasingly, Canadian firms are turning to factoring or accounts receivable financing. This method might seem complex, but it's quite simple once you comprehend the pricing and day-to-day functioning.

 

  

The Simple Solution -  Invoice Factoring / Financing Accounts Receivables  

 

Choose daily, weekly, or monthly intervals to sell your receivables on the company's balance sheet. When you make a sale, you receive immediate cash, transforming accounts receivable into an ATM for Canadian entrepreneurs and finance managers. Discovering this ultimate cash flow solution can be a game-changer for small businesses and companies of all sizes. But what are the downsides?

 

   

The Two ‘Catches’ of Financing Receivables

   

While accounts receivable financing might seem attractive, there are two 'catches' that businesses need to understand and address.

 

Cost of Financing

The first is the cost compared to a traditional bank loan / unsecured financing, which typically ranges from 9%  per month in Canada and in some cases, 1.15%/mo, referred to as a discount fee. Though this might seem expensive many business owners do not consider the carrying cost of the receivables and the 'opportunity cost' – the potential for higher profits using cash flow from receivable financing.

 

Why Isn’t Every Canadian Business Using Receivable Financing?

 

The reality might surprise you; large Canadian firms often utilize this financing method for funding a company's sales revenue. Their financial strength allows for more flexibility in managing this facility daily, often enabling them to bill and collect their receivables - something rarely found in the Canadian market. 7 Park Avenue Financial's recommended solution is Confidential Receivable Financing, allowing a business to bill and collect its receivables while achieving all of the cash flow benefits of A/R financing.

  

Conclusion  

Seek out the unique 1% solution that allows this flexibility. Your business can secure competitive working capital funding and virtually limitless cash flow growth.

Call 7 Park Avenue Financial,  a trusted,  credible, and experienced Canadian business financing advisor who will ensure you have the best and lowest cost capital funding solution tailored to your business, allowing you to unlock growth solutions and profits.

 

  

 FAQ:   

 

What is the Cash Conversion Cycle?

The Cash Conversion Cycle (CCC) is a critical metric that measures the time it takes for a company to convert its investments in inventory and other resources into cash flows from sales. It encompasses three stages:

1. Days Sales Outstanding (DSO): Time taken to collect payment after a sale.
2. Days Inventory Outstanding (DIO): Time  taken to sell inventory.
3. Days Payable Outstanding (DPO): Time taken to pay suppliers.

The formula for calculating the  company's cash conversion cycle 'CCC ' is:

$\text{CCC}$$<span\; style="font-size:\; 16px;">=</span>\text{<span style="font-size: 16px;">DSO</span>}<span\; style="font-size:\; 16px;">+</span>\text{<span style="font-size: 16px;">DIO</span>}<span\; style="font-size:\; 16px;">-</span>\text{<span style="font-size: 16px;">DPO</span>}$$\text{CCC}=\text{DSO}+\text{DIO}-\text{DPO}$

Keywords related to CCC include working capital management, liquidity, operational efficiency, cash flow management, inventory turnover, and accounts payable/receivable.

 

What is Debt Financing Versus Equity Financing?

 

Debt Financing: This involves borrowing money, typically through loans, bonds, or other debt instruments, to be repaid with interest. It's a way for businesses to raise capital without giving up ownership. Keywords include interest, principal, creditors, leverage, and fixed obligations.

Equity Financing: This entails raising capital by selling shares or ownership in the company. Unlike debt financing, there's no obligation to repay the funds. Instead, shareholders may receive dividends and have a say in the company's operations. Keywords include shareholders, dividends, ownership, dilution, and capital structure.

 

3. What is the Impact of Currency Exchange Rates in A/R Financing?

Currency exchange rates are vital in accounts receivable (A/R) financing, particularly for businesses dealing in multiple currencies. The fluctuation of exchange rates can:

• Affect the value of receivables, leading to currency risk.
• Impact on the cost and availability of A/R financing.
• Create complexities in managing international trade credit.

 

What are Alternative Financing Options for Receivable Financing in Addition to Factoring?

In addition to factoring, alternative financing options for receivable financing include:

• Invoice Discounting: Selling invoices to a third party at a discount but maintaining control over collections.
• Asset-Based Lending: Utilizing assets like receivables and inventory as collateral for a loan.
• Supply Chain Financing: Collaborating with suppliers and financial institutions to optimize working capital across the supply chain.
• Peer-to-Peer (P2P) Lending: Leveraging online lenders and their platforms to match borrowers with individual lenders.

 

 

What is a working capital loan?

 

A working capital loan is a specialized type of loan designed to finance the daily operational expenses of a business. Unlike traditional loans, often used to finance long-term investments or capital expenditures, working capital loans cover short-term needs like payroll, rent, inventory purchases, and other day-to-day expenses.

This type of loan is particularly beneficial for businesses with cyclical or seasonal revenue patterns, where there might be gaps in cash flow. It helps companies maintain smooth operations when expenses or income are high.

There are various types of working capital loans, including:

1. Line of Credit: Offers flexible access to funds up to a specific limit, allowing businesses to draw and repay as needed.
2. Term Loans: Provides a lump sum of capital paid back over a set term with interest.
3. Invoice Financing: Advances funds based on unpaid invoices, enabling businesses to manage cash flow without waiting for customer payments.
4. Trade Credit: Involves obtaining goods from suppliers with a deferred payment agreement.

The primary goal of working capital loans is to ensure liquidity and financial stability in the short term, allowing businesses to continue operating smoothly regardless of fluctuations in revenue or unexpected expenses.

 

What is the difference between a working capital loan and financing receivables?

 

Both working capital loans and receivables financing are essential tools in managing a company's cash flow and liquidity, but they serve different purposes and function in distinct ways. Here's an outline of the key differences:

Working Capital Loan

1. Purpose: Aimed at funding the day-to-day operational expenses of a business, such as payroll, rent, utilities, and inventory. It's a tool to smooth out cash flow fluctuations.
2. Structure: This can be a term loan, line of credit, or other forms of short-term financing. The structure is often flexible, catering to the general working capital needs of the business.
3. Collateral: May or may not require collateral, depending on the lender's requirements and the borrower's creditworthiness. If needed, collateral can include various business assets.
4. Approval & Terms: The lender assesses the overall financial health of the business, including credit history, profitability, and financial stability. The terms can vary widely based on these factors.

Financing Receivables (e.g., Accounts Receivable Factoring or Invoice Discounting)

1. Purpose: Leveraging unpaid invoices or accounts receivable (A/R) to generate immediate cash. It helps bridge the gap between invoicing a customer and receiving payment and avoids the need to borrow money via term debt.
2. Structure: Selling or using the A/R as collateral to get an advance from a financial institution or factoring company. The advance is typically a percentage of the invoice's face value.
3. Collateral: The collateral is the receivables themselves. The lender's security is tied to the quality and collectibility of the financed invoices.
4. Approval & Terms: The lender's focus is often on the creditworthiness of the invoiced customers rather than the company seeking financing. The terms are closely tied to the receivables' value, age, and risk.

While working capital loans provide a more general form of financial support for daily operations, financing receivables is a specialized method tied to leveraging unpaid invoices to improve cash flow. The former takes a broader view of the business's financial health, while the latter is closely related to specific transactions and the creditworthiness of the company's customers.

 

Click here for the business finance track record of 7 Park Avenue Financial

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Financing receivables can be a key ' igniter ' in your firm's search for business credit that works for your cash flow needs. Accounts receivable factoring and the cost of factoring in your search for business funding requires some special analysis and expertise.This method of financing can often ' unfreeze ' your working capital. Let's dig in and show you how to fix the business credit freeze.


How Does Factoring Invoices Function On A Day To Day Basis

The entire FACTORING process is the cash flowing of your receivables after your firm has provided either its goods or services to your client. There is a defined process that allows your company to receive funding on completion of your sale and the invoice to the client.

Factoring clients are best suited to these financial solutions when their business is growing and traditional capital is not available. In fact, while traditional financial institutions are focused on credit limits, annual reviews, etc factoring solutions are very flexible and limits can very easily be raised if your sales are growing. In fact business owners control their own limits based on their decisions as to how much of their receivables they wish to finance and when to submit those invoices for financing.

After your firm has invoiced your client you provide a copy of that invoice to the receivable finance firm you are utilizing . Many firms offer very different types of versions of what we could call ' traditional factoring' but essentially you will receive your funds withing a day or so of invoice submission .  The amount you receive on the face value of the invoice is typically  80-90% of the invoice amount . You receive the balance of the invoice when your client pays, at which time a fee of approx  1-2% is deducted as the ' factoring fee ' .

This latter point of a factoring fee must be stressed and understood when looking at this type of accounts receivable financing . Why ? Many business owners and financial managers view the factoring fee as an ' interest rate ' when in fact it is simply a cost of the service for providing the financing, A better way to think of it is that is a reduction in your gross margin of that 1-2% range that we expressed previously . This whole area is one of the largest misnomers around FACTORING and its true cost. Your true financing cost in factoring will revolve around the agreed upon fee charged, and your ability to negotiate the amount that will be advanced on each invoice. Those are two, but not all, of the  key drivers in calculating your cost of financing .

Why Does Factoring Work ?

Factoring works simply because it turns your sales into working capital, allowing you to accelerate cash flow via the financing of a/r.  Business owners will not be surprised to know that it takes typically anywhere from 30-90 days these days to collect your accounts, your stated payment terms notwithstanding!

It should be noted that the advance rates on each invoice tend to vary by industry - the trucking/freight and staffing industries are two examples of high users of this method of financing sales so the advance rates are quite high - that's a good thing ! It should be noted that some costs considered as ' miscellaneous ' by some such as account set up, bank lockbox fees, and credit checks can add up and should be considered in your total cost analysis.


Accessing the cash allows you to address the day operating cash needs of your business. If your company is in a position of either having to , or offering, extended payment terms for your suppliers and your have sufficient gross margins then FACTORING is a solid potential solution for your business.

In certain cases a business might be able to take advantage of taking on a new or larger client that previously was not able to be considered based on size and the working capital investment your firm would have to make in carrying a/r or funding additional inventory.

A firm having a large number of clients that generate a large number of invoices could utilize  FACTORING as a method to reduce the collection costs and investment in staff to facilitate financing.

A  key benefit of factoring is that it does not bring debt onto your balance sheet - it is not a loan ! Rather it is the monetization of what is typically your largest current asset - A/R. As we mentioned many firms are stalled in sales growth due to their inability to fund the working capital component of sales . The FACTOR solution allows you to take on those clients with ease .

Many firms experience what the pros call ' bulge finance needs ' ; this might be at times of the seasonality of the business , or other reasons . That's when the FACTORING solution makes sense.

Factoring is often viewed as a ' bridge ' to more traditional financing, typically Canadian banks . Being able to demonstrate a successful factor finance facility allows your company to build a track record in stability, thereby improving your commercial credit history .with one of them. In times of economic crisis, pandemics included alternative financing sources such as  AR Financing allow your firm to weather the storm .

Every business owner can relate to the constraints Canadian chartered banks come under  for the financing of business in a downturn -  Downturns might be company-specific or part of a general industry-specific or broad economic downturn. That situation tends to lead to a downward spiral in many firms as business credit tightens . FACTORING COMPANIES typically finance companies in good times and in less than good times.

Can Factoring Improve Profits?

Many businesses considering factoring finance tend to compare it to more traditional business finance solutions such as those services offered by banks. Many suppliers and vendors to your business offer early payment discounts  - one such common offering is' 2% net 10 days '. That allows you to deduct 2% of the suppliers invoice based on paying early. Firms that have incoming cash tied up in a/r are of course unable to take advantage of this discount . But factoring solutions allow you to take that discount, thereby lowering a very significant amount of the factoring fee! In some cases you can purchase in bulk allowing you to further lower your cost of goods , thereby improving margins. As we have noted firms that are constantly battling the cash flow challenges can rarely take advantage of the two examples we have outlined.

Factoring Costs Laid Bare!  Assessment of 3 Critical Facts In Invoice Finance

We have already mentioned the factoring fee, that is the actual charge by your commercial financing partner to finance invoices on an ongoing basis.  The decision on what that fee is becomes based on a number of factors assessed by your factoring firm. Those data points include  your clients overall industry profile, your own firm's general creditworthiness , and the amount of the facility you require.

The next key factor can be significantly  a cost significantly controlled by yourself,  namely your average DSO / collection period. So if you turn over your receivables more quickly that monthly factoring fee stays low, as the charge is based most often on a 30 day collection period. Therefore your costs would increase if your client paid in 60 days. Companies with good credit extension policies are a winner in the factoring game.

 Example Of Factoring Cost :
 Invoice Amount -  $ 20,000
 Factoring fee - 1.5% = $300
In the above example your firm would get 90% of the 20,000 as soon as you invoice, namely $18,000. 
The balance of $2000 less the $300 fee is paid to your immediately on payment by your client.
In the above example you have not incurred debt, become cash flow positive immediately on invoicing, and continue to maintain general creditworthiness with your suppliers, operating costs, etc.
 A  harsher reality of factoring solutions is the fact that many firms these days simply cannot  meet the demands of Canadian banks when it comes to accessing the business credit they need. Alternative finance solutions such as factoring and asset based lending allows your firm to leverage it's assets and sales revenue potential. Thousands of Canadian businesses utilize this method of cash flowing sales when they otherwise could not achieve. While in the majority of cases the factoring firm, or asset based lending firm becomes your ' senior lender ' these facilities also can be complementary to other business credit you have in place. It's all about your total exposure to your lenders versus the amount of  collateral you have in receivables and other assets.Trends now show that thousands of businesses in Canada find themselves unable to get the financing they need. Whether they are ' cut off ' or simply ' restricted' in getting capital into their firm the repercussions can be anywhere from being mild to severe, severe of course meaning closing your business.

So why is receivable finance funding different, and how does the business owner/manager asses the cost of factoring A/R into a sensible arrangemen

The essence of invoice discounting, aka ' factoring, aka ' invoice discounting ' is simply the ability to monetize sales directly into cash as you generate revenue. That in itself is a powerful statement. Where things go wrong is when your business locks itself into a facility that either costs too much, is unwieldy to operate, and simply doesn't mesh with your day to day operations. By the way, that absolutely doesn't have to be the case!

So if banks also margin receivables for cash flow for your business wouldn't Canada's chartered banks be the optimal solutions for cash flow finance. Well they would be that perfect solution if your business qualifies, and if you do qualify do you in fact have access to all the credit you need to grow the business when it comes to seasonality, large orders, cash flow bulges, slow paying clients, etc. The answer is that while our banks in Canada provide the best and most ' low cost ' solution the reality is that not everyone qualifies.

The short answer to bank versus non-bank funding in Canada, when it comes to A/R finance is that the bank bases its decision on your sales, profits, and balance sheet; Factoring, on the other hand, bases its finance formula only on your sales and the invoices generated from that revenue. Oh, and by the way, funding is in fact ' same day '. And it's only as complex as you want it to be, and the industry itself, unfortunately, does not always do a good job of explaining facilities; sometimes employing smoke and mirrors to hide costs and day to day facilitation of the financing. That's when you need clarity!




You have the ability to negotiate what is known as a  ' non recourse ' facility which allows you to transfer all the credit risk to your financing firm - albeit at a cost.

The key to a successful A/R finance program in Canada is your management of the program. The type of facility you enter into, as well as your ability to control what you finance and when is critical. And, as a kicker, our recommendation to clients is ' confidential ' facilities that allow you to bill and collect your own receivables in a manner that allows the competition to do only one thing - figure out where you are getting all that cash . Always keep in mind that the firm financing your receivables is typically more concerned with the overall quality of your customer based, so any firm that is perhaps facing financing challenges is not eliminated from being able to source funding. Knowing you have a strong underwriting partner to fund your sales is a key success factor in any business.

Finally, the concept of ' notification' and ' verification' should be high on the list of factoring due diligence. These two terms arise out of what we at 7 Park Avenue Financial call ' old school ' factoring, and involves occasional or constant verification of invoices with your clients.  At 7 Park Avenue Financial we tend to view this form of factoring as somewhat ' intrusive ', so our recommended and preferred solutions is Confidential Receivable Financing, allowing you to bill, and collect your accounts without any notification to clients, suppliers, etc. All the benefits, and less of the hassle!

Whether you're a start-up, medium-sized firm, or a large corporation, financing receivables can be a huge part of your business success. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor today who can assist you with the facility that makes the most sense for your unique needs.



7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.



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.

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

Stan has had a successful career with some of the world’s largest and most successful corporations. He is an experienced

business financing consultant

.

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 financing 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
7 Park Avenue Financial/Copyright/2020

How To Decide If Financing Receivables Is a Solution for Your Working Capital Funding

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We call it the R R factor. And we are not talking about rest and recuperation! The R R factor will give you a sense it its time to consider whether a newer, more popular method of financing receivables is your working capital funding solution.

We're going to provide you with a quick but easy and powerful tool to determine if your cash flow challenges need to be addressed in a more positive fashion. It's the receivables to revenue ration - hence the term R R. First, take you year end balance of A/R, which is of course your uncollected sales revenue at that point in time. Then determine how many weeks of sales that represents. Calculate this ratio historically and you have a method of determining whether your cash flow and working capital requirements are changing.

So how does business address the challenge of working capital funding when it's as challenging as ever to borrow. Many companies are assessing factoring, or financing receivables. It's a simple process that is only made complex and difficult when you don't understand the pricing, how it works on a daily basis, or the important need to align yourself with a partner that offers and matches your business financing needs.
The process is actually quite simple --- On a daily, weekly, or monthly basis - it's your choice, you sell your receivables. So what happens next? Simply that the day you generate that sale you have the same day cash for those receivables. Therefore the Canadian business owner and financial manager have created a true ATM machine out of the investment the company has in accounts receivable. Readers will also begin to immediately appreciate that they have just stumbled upon the ultimate cash flow solution, because every time they sale they have instant cash. So what's the catch?

We believe there are 2 catches, and when the business owner understands and addresses them the receivable financing solution becomes much more clear and common sense.
The first ' catch ' is the cost. The typical Canadian cost of financing a receivable is 1.5- 2% / month. The firms offering the service do not call that an interest rate, they call it a discount fee. You sold something, for cash, i.e. you're receivable, and it was discounted by 1 or 2% for that privilege. Is that expensive. Absolutely... maybe! That is because most business owners don't pick up on the fact that they are in effect carrying those receivables already, which is a cost that is often not intuitively calculated by the business owner. Secondly, the term ' opportunity cost ' comes in to play, because the reality is that if your firm can generate a good return on investment you can use the cash flow from your receivable financing to generate higher profits.

So why isn't factoring or receivable financing the choice of every Canadian business for working capital funding? The reality is, and this is a surprise to many, that the largest firms in Canada utilize this financing. They simply have a stronger ability, due to their financial strength, to determine how the facility works on a daily basis, the best type of facility we recommend to customers is one in which your firm is able to bill and collect its own receivables, which is not offered by 99% of firms in the Canadian marketplace. Search out that 1% solution is what we tell our clients - at that point you will have a competitive financing vehicle for working capital and virtually unlimited cash flow growth.

7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Office = 905 829 2653

Email = sprokop@7parkavenuefinancial.com

http://www.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 .

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR
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












http://www.7parkavenuefinancial.com/financing_receivables_working_capital_funding.html



Article Source: http://EzineArticles.com/expert/Stan_Prokop/432698


Article Source: http://EzineArticles.com/5263367

How To Decide if Financing Receivables Is a Solution for Your Working Capital Funding

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Know When It’s Time To Look At A New Way of Financing Cash Flow Needs

Information on working capital funding solutions.Financing receivables and other current assets is a solid way to ensure your business can meet it's cash flow needs

We call it the R R factor. And we are not talking about rest and recuperation! The R R factor will give you a sense it its time to consider whether a newer, more popular method of financing receivables is your working capital funding solution .

We're going to provide you with a quick but easy and powerful tool to determine if your cash flow challenges need to be addressed in a more positive fashion. It's the receivables to revenue ratio - hence the term R R . First, take you year end balance of A/R, which is of course your uncollected sales revenue at that point in time. Then determine how many weeks of sales that represents. Calculate this ratio historically and you have a method of determining whether your cash flow and working capital requirements are changing.

So how does business address the challenge of working capital funding when it’s as challenging as ever to borrow. Many companies are assessing factoring, or financing receivables. It’s a simple process that is only made complex and difficult when you don’t understand the pricing, how it works on a daily basis, or the important need to align yourself with a partner that offers and matches your business financing needs.

The process is actually quite simple --- On a daily, weekly, or monthly basis - it’s your choice, you sell your receivables. So what happens next? Simply that the day you generate that sale you have the same day cash for those receivables. Therefore the Canadian business owner and financial manager have created a true ATM machine out of the investment the company has in accounts receivable. Readers will also begin to immediately appreciate that they have just stumbled upon the ultimate cash flow solution, because every time they sale they have instant cash. So whats the catch?

We believe there are 2 catches, and when the business owner understands and addresses them the receivable financing solution becomes much more clear and common sense.

The first ' catch ' is the cost. The typical Canadian cost of financing a receivable is 1.5- 2% / month. The firms offering the service do not call that an interest rate, they call it a discount fee. You sold something, for cash, i.e. you’re receivable, and it was discounted by 1 or 2% for that privilege. Is that expensive. Absolutely ... maybe! That is because most business owners don’t pick up on the fact that they are in effect carrying those receivables already, which is a cost that is often not intuitively calculated by the business owner. Secondly, the term ' opportunity cost ' comes in to play, because the reality is that if your firm can generate a good return on investment you can use the cash flow from your receivable financing to generate higher profits .

So why isn’t factoring or receivable financing the choice of every Canadian business for working capital funding? The reality is, and this is a surprise to many, that the largest firms in Canada utilize this financing. They simply have a stronger ability, due to their financial strength, to determine how the facility works on a daily basis, the best type of facility we recommend to customers is one in which your firm is able to bill and collect its own receivables, which is not offered by 99% of firms in the Canadian marketplace. Search out that 1% solution is what we tell our clients - at that point you will have a competitive financing vehicle for working capital and virtually unlimited cash flow growth.

Speak to a trusted and credible business financing advisor who can assist you to put together a solid working capital funding solution.

7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Office = 905 829 2653

Email = sprokop@7parkavenuefinancial.com



Click here for 7 PARK AVENUE FINANCIAL http://www.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 .

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR
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