Something Different in Cash Flow Financing ?
OVERVIEW – Information on debt factoring in Canada . How business factor companies work . Which one is best for your firm?
Debt factoring is a bit of a misnomer here because when you deal with a business factor company you are actually not incurring any debt... but we can't stop clients from calling things what they want to!
Business factor companies in Canada often maintain they offer your firm a ‘lifeline '
when it comes to cash flow generation. Does debt factoring, aka ' receivable financing ' really work, and if so... how!
Any company that sells on credit and has receivables can generation faster cash flow via factoring. The actual process could not be simpler - it's either a one time or ongoing sale of your A/R as you generate sales. Some advantages are that you can finance what you what, and when you want. If you have signed up for the right facility you are under no obligation to finance all your sales, just the amounts you need under your facility.
As we said, factoring is not a ' loan ' per se. That's where the misnomer lies, in that you are not creating or adding any debt to the balance sheet, you are simply monetizing sales, as you make them!
In general most facilities of this type in Canada are on a recourse basis, simply meaning that your firm is still responsible for the overall risks in collecting the receivable, and collecting it in a timely fashion. Since the main component of factoring pricing is ' time ' you benefit significantly by financing and then focusing on collecting those receivables. Large corporations maintain that focus... you should also.
Factoring pricing is widely misunderstood in Canada. The three parts of the pricing of receivable finance are as follows -
The advance rate
The fee
Time
If you're dealing with the right firm you usually are able to obtain 90% advances on your receivables. The ten per cent becomes a hold back that is remitted to you promptly after your client pays. Discount rates are 1.5-2% on financing. That means that the finance firm will deduct that fee as their profit on every invoice based on a typical 30 day collection period.
And as we said that final component is simply how long the receivable is outstanding? So focus on collecting those sales!
Do we have a recommended type of facility? In general the best suited facility for your firm is a confidential A/R finance facility. Here you are financing your sales and at the same time maintaining the right to bill and collect our own A/R.
Speak to a trusted, credible and experienced Canadian business financing advisor who can ensure you are getting proper debt factoring 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 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/debt-factoring-business_factor_companies.html
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
