Tweet



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 Access Business Factoring For Cash Flow Success Via Receivable Financing

Tweet



Receivable financing solutions in Canada, often called  ' business factoring ',  offer a true ' second chance ' when it comes to the business owner/financial mgr’s ability to turn adversity into opportunity. This business finance solution goes by a few names: invoice factoring, invoice discounting, receivable factoring, etc.  There are different forms of factoring, so we forgive new clients at 7 Park Avenue Financial for sometimes getting overwhelmed with the terms!


The ability of your company to turn cash flow for business challenges into a major win in working capital and cash flow might just come from one of Canada's newer forms of business financing, called ' business factoring '. Spoiler alert -  Accounts Receivable factoring it's not that new!

Getting the order, and then getting paid. The old  ' cliché' of  ' the order is not complete until it's paid for '... as trite as that sounds, seems to hold true even today, especially for new, small and medium size firms.

Many clients we meet with are in the enviable position of getting larger orders and contracts than they might have imagined based on their innovative products and services. But with that success, as we noted, comes the challenges of cash flow financing.

During the past few years with all the economic turmoil it seems Canadian business financing options seem either limited or have disappeared - that's certainly how many clients feel. The impact of accounts receivable growth is a huge challenge, not to mention inventory and Purchase Order / Contract funding needs.

 Many companies find that traditional bank financing is restrictive to a point that Canadian banks can't meet their business credit needs. The concept of ' seeling a/r ' to a third party and generating immediate cash as you grow sales has become popular with thousands of companies in Canada.   This differs from assigning accounts receivable to a bank.

Note that almost all of the commercial factoring in Canada is done by non bank commercial lenders. Canadian banks will often refer customers seeing a/r financing to a specialty lender or an experienced advisor familiar with factoring.

Advantages of Factoring Vs. Other Types Of Financing 

There are of course some significant differences between a/r finance and the concept of a ' commercial loan '.  Primary is the fact that this type of business credit is not a ' loan' per se - your company does not take on debt on your balance sheet.  The amount of factoring financing is simply directly related to the amount of your A/R. Canadian borrowers will be happy to know that there is virtually no upper limit to the amount of factoring finance if your firm is growing and has good receivables, domestically or internationally. 

Borrowers know only too well that bank financing is tied to credit limits, annual reviews, and a variety of covenants, personal guarantee focus, and the potential requirement of outside collateral. Many Canadian firms feel the pressure to increase outside equity, and a good receivable financing facility will allow you to potentially avoid that need.

What Type Of Company Utilizes  Accounts Receivable Financing?

Almost every industry in Canada uses Factor financing.  Industries in the oil and gas sector, staff placement, manufacturing, distribution, wholesaling, trucking, technology and business services all are major clients of the receivable financing industry.

Although some businesses that are financially challenged in some manner, the proverbial ' bad credit ' industry statistics show that the factoring industry is experienced strong growth and popularity.


Business cash flow, a la ' cash is king ' has never been more relevant for the economy. Receivable financing allows firms to not be victimized by clients pay 30, 60 or dare we say it 90 days beyond stated payment terms. It's the SME sector that feels that pain the most, as larger corporations have access to more liquidity.

Business factoring can be called a subset of asset based financing - the monetizing of assets without taking on commercial business loans and term debt. The speed at which factoring facilities can be arranged is also an appeal to Canadian business owners and their financial managers. The concept of no installment payments has broad appeal to factoring clients.

Key Points in Determining the Financing Value Of Your Accounts Receivable 

Numerous factors are taken into account when commercial lenders are setting up your accounts receivable financing facility. It's all about the true value and quality of your a/r. When it comes to your accounts receivable ageing it's no secret newer invoices have greater value - numerous industry statistics validate that point.  Who your client is also is important. An extreme example has been given that a receivable owing to your firm from Google has more value than one owing from a local DVD rental store!

As a commercial borrower in a factoring facility the more info you have on your a/r base will result in a more cost effective facility.

What Do Factoring Companies In Canada Require To Set Up Your Invoice Purchasing Facility     

As a general rule borrowers will be pleased to know that the entire application process in setting up your facility is very simple and straight forward. Key information required includes :

1.     Standard credit application 
2.     Agings for a/r and a/p
3.     Confirmation of legal company name - ie articles of incorporation
4.     Sample invoice 

New clients of 7 Park Avenue Financial always want to understand how the advances and cost work when it comes to receivable funding. As a general rule your sales invoices are funding at 90% of their face value.  Your firm receives the balance of the invoice, ie the remaining 10%, less financing costs when your client pays the invoice. Invoice purchasing is now completed!

It should be noted that there is no requirement to finance all your a/r base, although many of our clients choose that route, allowing the facility to mirror a true bank line of credit.

So we have waxed eloquent on the problem- That's easy. You'd prefer a solution though!   Receivable financing, also known as factoring addresses the issues of your customers paying you in 30.60, or dare we say it, 90 days. You can carry those receivables and continue to make a high investment in current assets, or you can turn your sales into immediate cash.

Let's cover off some other basics around how this innovative method of business financing works.  When you sold the product or service you hopefully had enough gross margins in your cost of sales to make the sale profitable. If you are able to sustain another 1- 2% of gross margin erosion you can use receivable financing to turn sales into same day cash, which is what this financing is about. That is known as the factoring discount, which is a cost, and not an interest rate as some people believe.

So how does this all work? We're glad you asked! Let's reveal and recap in a manner that's understandable.  Your purchase orders or contracts must be ' clean ' from a viewpoint of being able to demonstrate you can recognize revenue on your shipment.  We should interject at this point that the banks will finance your receivables also, but that comes with much stricter criteria and limits on the amount you can finance.

That is why factoring has risen in popularity, it provides unlimited... yes... unlimited same day cash flow for your sales. Your challenge is to work with a trusted, experienced and credible business financing advisor who can steer you to the right partner with the type of facility that works for you.


Although traditional factoring along the lines of the U.S. model requires your customer to be notified we are in fact a fan of the type of facility that allows you to bill and collect your own receivables, for all the obvious reasons.  At 7 Park Avenue Financial we've called that Confidential Receivable Financing.

It's important for clients to understand at its most basic how factoring works. You are advanced, on the same day as you invoice approx 90% of funds for your invoice. The remaining 10% is a holdback which creates a reserve and also covers the financing charges. When your customer pays you or the factor you receive the remaining 10% of your invoice amount, less the financing charge.

In Canada the cost of factoring from accounts receivable factors ranges from 1-2% a month.  The cost of factoring revolves around some key points. They include:

Industry specific issues relating to your company  - some industries are occasionally ' out of favour"

Size of your Receivable base - a very general rule is that many facilities start in the 250k range, there is no upper limit, but any size of facility small or large can ultimately be financed with the expertise of a business financing consultant 

General level of creditworthiness of your client base as it relates to any major concentrations or invoice size, geographical location, etc

DSO! Business people need to be familiar with the concept of DSO -  ' days sales outstanding ' It is a key measure of any successful company. The largest and most successful corporations in the world have this a key measure of financial and profit performance. DSO is measured in days, lower is better and the turnover of your a/r can dramatically affect the cost of factoring.



Note that it is also possible to transfer all of the risk of bad debt to your funder, which is known as non-recourse factoring - these facilities naturally cost a bit more and are sometimes abetted by credit insurance. Factoring companies in Canada and advisors can provide your firm with more info on this additional investment in credit risk.



It turns adversity into opportunity because you grow sales with larger gross and net margins, and if you utilize the financing properly you are actually in a position to reduce much, in some cases all of your financing costs by taking discounts with your own suppliers or buying smarter and in larger quantities. Reversing the cash flow for a business problem - That’s a win win in the language of business.


In summary, it is important to realize how factoring works and why it can be valuable to your business, in good times and in less than good times! Your firm accelerates cash flow and literally unties the capital you have invested in sales to clients.


If you are looking to factor receivables seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your business factoring and A/R financing 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 Does Receivable Financing Work ? Factoring 101 ! Now You Know

Tweet

Information on Account Receivable Financing in Canada

Most people agree that Canadian business model and the Canadian psyche differ from those of our friends in the United States in many aspects of business

Accounts receivable financing, also called ' factoring ' goes back to the 1400's and is an accepted way of doing business . Simply speaking it is the ability of a company to immediately obtain cash for their receivables , thereby augmenting cash flow . Factoring is generally viewed as expensive , as the company views the discount rate as the ' interest rate ' on the transaction .

Key benefit of Proper A/R Financing and Factoring :

Improved Cash Flow

In both the U.S. and Canada very typical accounts receivable factoring rates range from 1 - 2% per month. Issues that drive the overall rate are the over all transaction size, the credit quality of the debtor , and the historical time that the debtor has taken to retire invoices .

To be clear, when we talk about the participants in a factor transaction, there are three, the company selling the receivable, their customer ( the debtor ) and the finance or factoring firm . Choosing the right receivable financing companies is critical!

Customers choose factoring , or are forced into considering factoring, when they do not have bank financing, or the financing that is in place is not sufficient to fund working capital .

Companies in Canada have been slow to utilize factoring - there are numerous smaller finance firms that offer the service, and more predominantly, the landscape is covered with branch firms of U.S. and U.K. companies who are established leaders in their respective countries .

A few in Canada offer factor facilities, a fact not generally known to the Canadian business market .

More often than note smaller and medium firms who don't have access to traditional bank lines of credit utilize factoring . They use this financing facility to grow their business, maintain acceptable levels of cash flow, and ensure debt and government payments re taxes, etc . are made on time .

How much is it? No we aren’t in line at a department store, we're sitting with our clients who are always asking what the true cost of factoring receivables is and if a receivables financing facility is their real solution for working capital problems. They ask other questions also, such as how the facility works and what is the best type of facility for the Canadian business marketplace, so we we'll cover those off also .



We don’t think there is more of a misunderstood business financing in Canada, notwithstanding the fact that receivables financing is growing in popularity traction everyday. The biggest stigma around the topic is really the true cost, and we use the word true cost because many Canadian business owners and financials managers simply don’t understand the components of that true cost, and more so, how these costs can be significantly offset and reduced.

We'll point out that coming up the rear fast and furious behind true cost are the issues of how the facility works and what type of facility is the best one in Canada - as there are several types.

To properly address our issue lets quickly define our subject - factoring, ( also called receivable discounting and invoice financing ) is simply the sale of your receivables to a third party firm, that firm providing you with immediate ( and we mean same day!) cash to finance your business

One of the misconceptions clients have around pricing is related to the fact that you receive (depending on who you are dealing with) 80-90% of your invoice amount in a receivables financing scenario. This must be taken into account when you are looking at total factoring cost.

One thing that constantly disturbs us is that the terminology mumbo jumbo that many factor firms use when they are offering you pricing on your facility. That’s why it makes total sense to talk to a trusted, credible, and experienced Canadian business financing advisor that will work with you through the (industry created) maze of factoring, factoring cost, and day to day paper flow.

You can quickly and easily focus in on the true cost of factoring by simply keeping in mind three things that you need to know - they are:

1. The percentage that you are advanced on your invoice (refer to our previous comments)

2. The discount rate charged on the advance

3. The length of time that you typically collect your receivables in

Most business owners are not readily facility with their DSO, their ' day’s sales outstanding '. You have to be, because it’s an ongoing measure of the time it takes to collect your receivables in days. It’s calculated simply by taking your receivable on an annual basis, multiplying them by 365 (days) and then dividing that number by your sales for that time period.

Therefore, if you know your collection period, and get an honest, clear answer on our three points you can easily determine the cost of factoring.

Let’s give you a clear example: Your factor firm advances you 80% of your invoice. Their discount rate is 3%. So if you are in the lenders shoes your annual return on the client (that’s you!) is simply: Discount rate % times 365 days Divided by number of days invoice is outstanding.

In Canada that rate is typically going to work out to be in the 1.5-3% per month range depending on the lenders perception of the size and quality of your accounts receivable portfolio.

Is that expensive financing? You tell us, because if you take into account the receivables financing facility provides you with unlimited cash flow to generate sales and profits, and that you can use the cash to offset financing costs, well... we dont think so .Costs can be offset by using the funds to take supplier payment discounts, and purchase in larger volumes and better prices re your inventory needs, etc.

Typical advance rates on factored invoices are in the 80-90% range . Firms utilizing factoring are often not aware of the mechanics of how these facilities are priced on a daily or monthly basis. Two different business models exist within the industry, recourse, and non- recourse . If the debtor does not pay the invoice a recourse transaction forces the company to pay back the factored amount, or replace it with another invoice .

As stated, many firms do not properly focus on the many nuances of the factoring transaction . These include the amount held back by the factor firm, when the hold back is released, and most importantly the paper flow involved in the transaction.

Canadian firms have tended to view factoring as very intrusive . They , unlike their U.S. and U.K. counterparts , have not appreciated that their customers are contacted regularly by the factor firm to verify invoices, demand payment, etc.

Ultimately the Canadian market seems to desire a non-notification factor model which is not widely available .

Prudent business owners and financial executives , both in the U.S. and Canada , can enhance their use of factoring by negotiating arrangements specific to their business , re receivable size, quality, customer time to pay, etc . Many firms also quickly realize the cost of the factoring can be significantly offset by the use of additional cash to negotiate supplier discounts, take trade discounts offered by suppliers, and in general , improve supplier relations .

When you are considering factoring a/r seek out and speak to a trusted, credible and experienced Canadian business financing advisor with a track record of business finance success, who can assist you with your working capital and cash flow needs.



7 Park Acvenue 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


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

Do You Know The Factors Affecting Business Financing & Business Lending

Tweet



Actionable Business Financing & Business Lending Tips

Business financing ! You've heard the rumour , namely that business lending is more available than ever. Whether it's small business funding or medium to larger corporations we hear capital is almost unlimited.

But for those firms that for a variety of reasons can't qualify for all, or even some of the financing they need from traditional sources such as Canadian chartered banks there is hope - in the name of asset based financing options.

Let's backtrack a bit and understand that a company, from a lenders perspective will always be identified relative to what stage of the company ' life cycle ' it is in. That might come in several stages , going all the way back to pre-sales revenue r&d to initial start up . It's a long journey to that ' high growth' stage . And it's not hard for the entrepreneur to dream about that final stage of business maturity where traditional financing sources are unlimited.

Have we forgotten anyone. Yes, we have , and it's prudent to mention that many companies, for a variety of reasons, are financially challenged and have poor financial performance and some serious cash flow or debt problems . Suffice to say the good news here is that even these firms can be financed or re-financed , as numerous alternative financing solutions are available .

Many firms often find themselves in the position of taking on larger orders or contracts that typical small business funding solutions can't deliver on .

3 OPTIONS FOR Alternative Financing

Purchase Order Financing - This is an increasingly popular method for a company to support purchase orders or contracts from new or larger clients. Without having to raise new equity or debt your order is financed by the lender based on who your client is and also ensuring you have a legitimate supplier .This financing can be achieved very quickly and makes sense when traditional finance doesn't work.

Accounts Receivable Factoring - This type of finance allows you to cash flow invoices immediately after you make a sale or deliver your services . The general credit worthiness of your clients allow you to get advances on your sales typically in the 80-90% of invoice value. Naturally this eliminates waiting to get paid, which these days seems to take anywhere from 30 to ..d are we say it.. 90days!

Simply speaking A/R financing is a cash flow accelerator!

Non Bank Business Credit Lines - Alternative financiers offer credit lines based on your inventory, receivables and equipment as a lump sump collateral . In our experience these credit line almost always exceed the amount you would receive under typical bank margining of these assets.

SUMMARY - If your business is growing , or even experiencing challenges investigate non bank solutions that will allow your firm to be in a constant position to access capital based on specific needs.
Seek out and speak to a trusted, credible and experienced Canadian business financing advisor with a
track record of success who can assist you with success in business lending.




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 area 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.
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

Don’t Let Your Company Collapse For Lack Of Cash Flow Financing . Canadian AR Finance For Receivables

Tweet

INFORMATION ON ACCOUNTS RECEIVABLE FACTORING FINANCE

AR Finance, i.e. cash flow financing has the ability to save your company when it fact your firm is faced with survival challenges. Let's examine when a receivables strategy works, and what you need to do to facilitate a financing that makes sense. In essence, ' how it works' and ' why '.

Canadian business owners and finance managers that face challenges of raising cash for their firm can utilize an A/R finance strategy, which is in effect the sale and monetization of your receivables to generate working capital. Our comments are focused on your firm being potentially in ' survival ' mode, but of course they apply to daily operations and growth, or even 'hyper growth ' which is a double edge sword.

If you do in fact require an A/R cash flow strategy are you in fact eligible? Let's examine some key requirements around getting a proper facility in place. We say ' proper' because in our opinion there are certain receivables finance structures that certainly aren't optimal for your company.

Getting back to those qualifications! As a general rule only commercial, i.e. ' Business to Business' a/r is eligible for financing . (While there are financing mechanisms for consumer A/R in Canada - securitization / merchant advance etc. ) invoice financing in Canada general pertains to commercial business receivables.

And by the way, your clients can be in Canada, in the U.S. or foreign - cash flow A/R financing has the ability to capture and fund all of these!

Naturally your firm also has to be selling on credit, as a cash sale environment just does not work!

Size more or less counts when in comes to your ability to set up a proper receivables facility. Although very small facilities can be set up a good rule of thumb is that monthly A/R in the 100k+ range is a recommended size. And by the way, there is NO upper limit on the size of your facility in Canada, as facilities exist for tens of millions of dollars if that is in fact required.

The issue of ‘concentration’ of comes up. As a rule of thumb it’s preferable to have your A/R base spread over a number of clients, with no one client becoming a huge part of your overall sales. That issue is certainly able to be resolved if in fact that's the case with your firm, but widespread A/R clients is in fact the preferred business model.

While in almost all cases Canadian business financing vehicles work best with established companies we do point out to clients that a start up firm can in fact set up a proper facility and benefit in the same manner.

While very small invoice transactions can be financed typically larger invoice amounts lend themselves best to this method of finance.

So those are some of the points that define your eligibility for a cash flow financing facility. To originate a facility you must be able to produce aged receivable reports, financial statements, and basic info around your business model.

Our recommended facility is confidential AR FINANCE, which allows you to bill and collect your own receivables. Generally this type of facility has a higher level of due diligence involved, but your firms reaps all the benefits of cash flow financing and remains in full control of all aspects of the day to day routine.

Speak to a trusted, credible and experienced Canadian business financing advisor
who can assist you in setting a proper facility that puts you in full survival, and hopefully growth mode for future sales and profits.





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


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

The Secret Of Commercial AR Factoring And An Accounts Receivable Financing Loan In Canada

Mind your own business! That's what a Canadian business owner or financial manager would prefer to do when they are considering accounts receivable financing, aka a commercial ar factoring loan. AR is of course accounts receivable, your second most liquid asset next to cash. Oh and by the way, the good news is it’s not a loan, per se, more about that later. Unfortunately current practices don’t allow you to ‘mind that business ‘.

So is there a way your company can obtain all the advantages of factoring , receive a competitive financing rate, and at the same time implement what is in effect a confidential invoice discounting program ? There is. First let’s cover off some basics.

You know the drill already. Your client base and investment in accounts receivable is taking up a huge part of your working capital. Sales are growing, or you have some major new contracts and business, forcing your working capital needs to go up.

The strategy. It's of course what thousands of business in Canada are starting to consider everyday - factoring. (Also called commercial invoice discounting). If you were going to implement this strategy in the manner that your competitors currently are then you would sell your receivables as you generate them , obtaining immediate cash flow to generate more sales, more profit , and of course cover all those operating costs you need to run your business on a daily basis .

But wait a minute. As commercial ar factoring and ar financing stands now in Canada, utilizing the U.S. and European model, your clients must be notified that you have sold that receivable to the finance firm.

Is there a way to avoid that somewhat ' sticky ' process and embrace the theme of our shared information here, which is ' minding your own business ‘? There is. The secret we are sharing is the availability of ' C I D' which stands for confidential invoice discounting. This is clearly the accounts receivable financing of preference for Canadian business.

Let’s examine what just happened as you have implemented this program. You have a bankable, liquid asset, your receivable portfolio. You now have the ability to in effect ' monetize ' that investment into working capital and cash flow today.

The costs of factoring are always a concern or subject of discussion when we talk to clients. The cost is in the 1-3% range per month. However companies such as yours need to understand that you can often cut those costs in half by effectively using your new cash to generate immediate sales an profits, take advantage of supplier discounts, and purchase more effectively and ' smarter ' from valued key suppliers .

So how does our ' secret ‘, i.e. confidential invoice discounting (factoring) work? It could not be any simpler. You bill and collect your own invoices, still receiving funds for them as you generate them. C I D rates are the same as ' regular ' commercial ar factoring, yet you are now in control of the process. And remember, important for you to understand this whole process is not a ' loan ' as we mentioned, you are just monetizing assets and turning them into working capital as you need them.

Let’s recap - the strategy = generate cash! The tactic - C I D - Confidential invoice discounting. Do you qualify? We are pretty sure you do, so why not speak to a trusted, credible an experienced Canadian business financing advisor on this valuable working capital concept.
-


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 50 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details :

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

Accounts Receivable Factoring in Canada

Guess what? Whether you are a start up, an established business, growing like crazy, or just trying to survive and stay competitive - you need business working capital financing. That is why one solution might be accounts receivable factoring in Canada.

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.
---
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 6 years - has completed in excess of 45 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details:
http://www.7parkavenuefinancial.com/accounts_receivable_factoring_canada.html