Accounts Receivable Credit Financing . The Non Bank Financing Difference ! How Receivables Funding Works .. and Doesn’t Work

No Need to Be Naïve About The Difference Between Accounts Receivable Finance and Invoice Discounting And Bank Financing



OVERVIEW – Information on how an accounts receivable finance solution works in Canada . This type of receivables funding is dramatically different from bank financing and being adopted by firms of all size



Accounts Receivable Credit Financing . For the majority of Canadian business owners and financial managers that are considering receivables funding as a finance strategy the main question seems to be:

What is the difference between A/R finance and bank financing for their company? It's a legitimate question, so let’s dig in!

One of the main reasons in fact that many companies choose an A/R receivable credit solution is that is simply doesn't involve new long term financing for your company. The most simple explanation of that difference between a commercial finance solution vs. a bank scenario simply involves understand that the receivables factoring / discounting solution is simply the sale of your receivables, as opposed to the financing of them. Both get you immediate cash flow - they just work a little differently.

On a daily basis the sale of a receivable generates cash flow for your firm. In Canada you typically get 90% of all your invoice the same day you instigate the A/R discounting process. The other 10%, less financing costs of approx 2% is remitted to you as soon as you client pays. Simple so far, right?

That 2% fee in fact becomes larger, commensurate with the time your A/R is outstanding. So don’t be prepared to lull yourself into a fall sense of security on your new cash flow tool, because whether you are holding receivables and waiting, or financing them in an accounts receivable credit factoring situation is still going to cost you money . Carrying balance sheet accounts such as A/R and inventory are a hidden but very real cost of doing business - and the faster you turn over balance sheet accounts leads to great profits and operating efficiencies.

The key advantages of a factoring solution are:

Immediate on going cash flow

Funding as needed for your business if you have seasonality or bulge requirements

A more solid balance sheet that reflects cash, not A/R

It's important to us when we’re in front of clients to maintain a balanced position when it comes to explaining receivables funding. So we do point out that if you enter into the wrong facility (and Canadian companies do that everyday) the actual optics of how people thing you are financing your company can be perceived as negative. It should not be that way, but it is.

Remember also that this method of financing doesn't take away the risk of carrying A/R, unless you have a receivables funding insurance program, which most companies don't. So making proper credit decisions around your clients needs should still be top of mind.

One of the key things to understand in a/r financing is simply that the cost of using this method of cash flow and working capital is a rising and falling process, depending on how much you are drawing down, what that final approximate 90% advance rate is, and the administrative costs you need to run an a/r finance program.

So , no need to be naïve when you weigh the costs of receivables funding vs. bank financing consider seeking and speaking to a trusted, credible and experienced Canadian business financing advisor who can help you set the record straight on those pros and cons of each method of finance.






Stan Prokop - founder of 7 Park Avenue Financial –

http://www.7parkavenuefinancial.com

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - has completed in excess of 80 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 re: Canadian business financing & contact details :


ACCOUNTS RECEIVABLE CREDIT AND RECEIVABLES FUNDING





7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Phone = 905 829 2653
Fax = 905 829 2653
Email = sprokop@7parkavenuefinancial.com

















Stan Prokop

Cash On Hand! What A Concept ! Let Canadian Accounts Receivables Credit Financing Via Factoring Funding Be Your Solution

Funding Peace Of Mind With Canadian Cash Flow Financing


Information on Canadian accounts receivable credit financing . Why factoring generates ‘ cash on hand ‘ for the cash flow your firm needs.



Accounts receivable credit financing is one method in which thousands of firms in Canada generate ' cash on hand '. That phrase is of course the accounting/business term which business owners and financial managers in Canada refer to with respect to their positive cash balances.

Your ability to have cash on hand at any given time provides you of course with the sense of positive feeling that you're able to fund both operations, and hopefully growth. We've observed over the years that Canadian financial statements typically seem to reflect less cash on hand when it comes to monthly or annual financial statements .

Naturally in tougher economic times it is even hard to maintain positive cash balances, and we're quire sure most business owners would maintain that they are not 100% satisfied with their cash position over time. It is of course important to remember that too much idle cash is a negative item - large corporations even risk losing their ownership when suitors circle with the intent of leveraging the firms cash and assets to in effect take their company away from them via a buyout . But we digress...

The pressures that reduce cash flow are obvious to most business owners and managers. They are fluctuating sales, lower profit margins, and the inevitable slow paying clients which these takes take anywhere from 60 to 90 days, even though your terms are net 30. We wish!

Although management of businesses in the small and medium sized sector in Canada (SME) typically focus on survival and daily operations it's clear to all hopefully that cash flow success also translates into ability to grow your business.

So how does business increase the cash cushion. The simply answer is to lower your costs, get extended credit with key supplies, lower inventory levels, improve collections, and monetize current assets .

Factoring receivables focuses on the latter, monetizing your typically largest asset, your A/R. Accounts receivable credit financing, i.e. ' factoring ' allows you to get paid on invoicing, typically getting 90% of your funds as soon as you deliver your product or service. And by the way, that other 10 per cent isn’t the cost of financing! that balance is remitted to you as soon as your customer pays, less financing costs which are typically in the 2% range if your terms and collectability equate to 30 days. Bottom line, all of a sudden your cash cushion of cash on hand is there, and it’s positive!

The receivable financing industry in Canada is fragmented, consisting of a number of large and small players. They offer the benefit of instant cash flow for firms, allowing them to meet the obligations we spoke of, i.e. payroll, government remittances, and growth.


So when should a customer consider factoring receivables. Typically it’s when you yourself have become the financing company you never intended to be, carrying larger amounts of inventory and receivables than you desire. All of a sudden you're in a position to take supplier discounts and entertain larger orders and contracts.

Is accounts receivable credit financing and factoring for your firm. It is if you maintain proper financial records, have generally creditworthy clients, and are in a position to provide those receivables as collateral for the cash flow. Simple as that.

Speak to a trusted, credible and experienced Canadian business financing advisor who can assist your with your ' cash on hand' needs!!





Stan Prokop - founder of 7 Park Avenue Financial –


http://www.7parkavenuefinancial.com

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years - has completed in excess of 80 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 re: Canadian business financing & contact details :

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

Would Your Firm Pay 20$ to Get $1,000? Why An Accounts Receivable Credit Financing Factor Strategy Makes Sense In Canada

Are Your Financing Costs Too Low? Yes, We Said low!


Information on the cost and benefits of accounts receivable credit financing in Canada and why a Cash Flow Factor Strategy Works .



It's an intriguing proposition and our segue today into a logical (we think) financial decision involving accounts receivable credit financing facilities, commonly known as factor finance in Canada. And who wouldn’t pay 20 to get 1000, but more about that a bit later.

Accounts receivable financing facilities are the sale of one, all, or part of your receivables on a one time or ongoing basis. The industry itself in Canada and the U.S. views the pricing around this sale somewhat differently than our clients. How? Simply because the industry thinks of the sale we have just referenced as a discounted price on the object of the transaction, your receivables.

Customers view it the other way of course, symbolized by the 3 most popular words in finance globally ' whats my rate'! The Canadian accounts receivable credit factor industry has evolved over time as a direct offshoot of the U.S. and European industry. It's clearly evolved a lot more slowly here, but in recent years gained significant traction due to pullbacks in traditional lending by Canadian chartered banks and other institutions.

So how does an accounts receivable factor line of credit differ from bank facilities which margin your receivables? In 2 ways really. First the general focus of any financing of this type revolves around the size, quality and geographical nature of your receivable investment you are looking to finance. Unlike banks that bore down into your financials a factor firm 99% of the time focuses only on the general quality and credit worthiness of your A/R base.

And what about that other 1%. That brings us to our recommended manner of accounts receivable finance in Canada, confidential invoice finance. In that type of facility you are allowed to bill and collect your own receivables without any notice or notification to your customer base. So it’s like bank financing from a facility point of view, except the mechanics are a bit different. Main point - your firm is in control, billing and collecting your A/R.

The second reason A/R finance from an independent non bank finance firm is different from bank business lines of credit bring us to our subject headline today. In Canada the general rate on financing your receivables is in the 2% range. (Sometimes higher, sometimes lower, but it’s a good average). Remember also we spoke of accounts receivable factor finance as a sale of your A/R. So if we take out headline example, a 1000.00 dollar receivable costs you 20.00$. (This assumes your customer pays in 30 days).

So the challenge for Canadian business owners and financial mangers then simply becomes as follows: If you had that 980.00 dollars immediately after you generated a sale and invoice (no waiting) what would you do with the funds?

If you are growing quickly it becomes a very easy decision, pay suppliers, buy more products, negotiate better pricing with new found cash, invest in sales and marketing efforts, etc. We think you get the point.

So, bottom line, 20 will get you 980. Does that make sense for every firm in Canada? The reality is that some of the largest corporations in Canada use this financing mechanism. (Their rate is a bit better as you can imagine!) But if your firm is growing, has challenges, or simply cant access bank credit then this financing concept should be very appealing.

Speak to a trusted, credible, and experienced Canadian business financing advisor who can assist you in evaluating costs and benefits in factor financing in Canada.



AUTHOR: Stan Prokop - www.7parkavenuefinancial



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