Commercial Factoring And Receivable Financing Strategies in Canada

Tweet

Is Commercial Receivable Financing & Factoring the Rock Star Of Alternative Finance? We Think So & Here's Why!

Information on commercial factoring receivable financing in Canada. You need to know the cost and benefits of this type of alternative financing to augment cash flow & working capital needs

Canadian business owners and financial managers can be forgiven for getting confused when they hear about ‘commercial factoring ‘of accounts receivable as a financing strategy that is recommended for both growth and business financing survival. Part of this confusion comes simply from the fact that this relatively new business financing strategy goes under several names – those names include invoice discounting, receivable financing, etc. In reality they all of course are talking about the same financing strategy – which is the sale of your receivables for immediate cash to another party, generally a ‘factoring company ‘.

The sale of these accounts receivable causes two occurrences, a profit for the factoring company, (generally between 1-2%) and immediate cash for your firm, which is the seller and owner of the receivables your firm has generated.

In Canada we feel the main challenge for the acceptance of this strategy is the entire concept of who collects the receivable, i.e. your firm which sold the product or service, or the factoring company. The Canadian business marketplace has been somewhat slower to accept commercial factoring as a true traditional business financing strategy because of the optics of who collects the receivable. In years gone by it were only ‘financially troubled’ firms that utilized this strategy. That has clearly changed and factoring of various types is utilized by small start ups to some of Canada’s major corporations.

When we meet with clients who are considering a receivable financing working capital facility it is very easy to explain the immediate benefits - these of course include working capital and cash flow generation. However the type of facility you enter into, what firm you work with, and how this facility works on a day to day basis is really the essence of the key points that we focus on when a client contemplates this type of financing.

The ‘cost ‘of factoring should be a key discussion point in contemplation of such a financing. Unless you are a large already very credit worthy corporation your factoring costs will range from 1-2% per month. Factors that should take into account are the length of time that your customers take to pay yourself, and your ability to sustain the additional financing costs. There is a bottom line here, and that is simply hat you should have sufficient gross margin on your product or service that allows you to bear these additional costs.

Customers think of these costs as the ‘ interest rate ‘ on the transaction – this is really not valid because commercial factoring is not a debt financing per se, it is simply the liquidating of your receivables at an agreed upon discount . At the end of the day whether it’s perceived as a ‘ rate ‘ or a ‘ discount ‘ it still needs to be build into your profitability and cash flows budgets .

Is commercial factoring and receivable financing a recommended strategy? It is if you can immediately benefit from cash flow and working capital. It makes even more sense when you can utilized those funds (often received the same day as you invoice) to take advantages of supplier discounts and improved purchasing power. We have known some customers that have gained 100% cash flow benefits by immediate sale of their receivable, while at the same time utilizing those funds to reduce almost all of their discount factor fees. That’s true cash flow power.

Is there a bottom line? It’s simply that you should investigate commercial factoring, determine which benefits might work for you – while at the same time assessing costs and how the facility will work on a day to day basis. If it makes sense at that point work with a trusted, credible and experienced advisor to implement this relatively new cash flow solution for Canadian business .



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

How Commercial Factoring Works In Canada: Costs & Benefits of AR Receivable Finance

OVERVIEW – Information on receivable finance in Canada. The right Commercial AR Factoring solution delivers on classic business credit line attributes

Commercial factoring in Canada addresses some of the major issues your firm faces everyday in cash flow and working capital challenges. Let's go inside the business credit line battle

- an ongoing wrangle between traditional banks and commercial finance companies. Let's dig in.


Most business owners know the drill - customers have always been slow to pay, and that's not getting any better. On top of that cash flow requirements change daily as your business addresses working capital needed to finance inventory and receivables, and at the same time managing investments in ongoing operations, debt payments, commitment to suppliers, etc.
Is there a solution to those challenges? We know there is. Is it as expensive as you may have heard, we are pretty sure it is not. The reality is that commercial AR factoring solutions have dramatically dropped in pricing over the last few years.
So what is A/R financing, and what solution, traditional or alternative, works for your firm?


Commercial factoring is the ongoing sale of receivables for instant cash. For many customers it always comes down to the rates and pricing they have heard about this type of financing. In Canada those costs range from anywhere from 9% per annum to 1-2% per month.


Let's talk about costs. . When many customers calculate their 'all in 'cost of borrowing from banks it is often a lot higher than they might think -despite those low bank rates . So it is important not to get 'seduced 'by your low rate expectations around traditional Canadian bank financing- not to mention the rigorous criteria banks impose for those low rates and flexibility .
We're big supporters of banks - when our clients qualify - which isn't always the case. Many clients we meet with simply can't meet the requirements, (the banks call them covenants) for borrowing on a revolving ongoing basis for working capital, particularly receivables and inventory. So the conversation around pricing becomes somewhat moot.


Instead of worrying b about the cost of factoring consider the following - If you have money tied up in accounts receivable for , as an example, 60 days, then you are losing the opportunity to receive payment and re invest in your business and increase your overall return on equity . The more quickly you can get paid allows you to reinvest in further sales for your firm, those sales create more profits.


Looking for unlimited working capital/cash flow for your business - Consider factoring, since as long as your sales and orders grow so does you access to cash flow - In essence unlimited!

A bottom line - Most business owners view cash flow as unpredictable, and commercial factoring removes that unpredictability - you in effect control the cash flow valve - financing all or a part of your receivables...when you chose.


A/R financing is growing all over the world, North American no exception, and certainly in Canada it has been on the rise also.
Some of Canada's largest corporations use this type of financing - when it comes to larger corporations fancier finance terms like ' securitization ' are used. Bottom line, General Motors factors, why shouldn't you? So even if your firm may have had some financial losses, or is in a turnaround situation, etc - you are still a solid candidate for this type of business financing!

Factoring is the ultimate in off balance sheet financing - you are simply monetizing your receivables and generating cash instantly. The secret of factoring costs, or their perceived costs, is your utilization of those funds. You can use cash flow generated from receivables sales to pay invoices from suppliers and take a discount, or negotiate better terms and pricing for your products .

When you have additional working capital you can grow sales and revenue and increase profits - that financial flexibility is what this type of financing is all about. Sometimes it is a 'bridge 'solution, in certain cases it can easily become your long term ongoing working capital solution.

So what’s our bottom line? Seek out and speak to a trusted, credible and experienced working capital advisor to ensure you understand the benefits of this unique type of business financing in Canada.



Stan Prokop - founder of 7 Park Avenue Financial –
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 13 years - Completed in excess of 100 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 & Contact Details :

http://www.7parkavenuefinancial.com

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

' 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

How Commercial Factoring works in Canada -Receivable factoring Costs and Benefits

Commercial factoring in Canada addresses some of the major issue your firm faces everyday in cash flow and working capital challenges. You know the drill – customers have always been slow to pay, they seem even slower these days. Your cash flow requirements change daily as you address working capital needed to finance inventory and receivables, and at the same time manage your investments in ongoing operations, debt payments, commitment to suppliers, etc.
Is there a solution to those challenges, we think there is. Is it as expensive as you may have heard, we are pretty sure it is not.
Commercial factoring is the ongoing sale of your receivables for instant cash. For many customers it always comes down to the rates and pricing they have heard about this type of financing. In Canada those costs range from anywhere from 9% per annum to 1-2% per month. So let’s address that cost issue a bit. When many customers calculate their ‘all in ‘cost of borrowing from banks it is often in the 11% range as an example. So it is important not to get ‘seduced ‘by your low rate expectations around traditional Canadian bank financing. Furthermore most clients we meet with simply can’t meet the requirements, (the banks call them covenants) for borrowing on a revolving ongoing basis for working capital, particularly receivables and inventory. So the conversation around pricing becomes somewhat moot.
Instead of worrying b about the cost of factoring consider the following – If you have money tied up in accounts receivable for , as an example, 60 days, then you are losing the opportunity to receive payment and re invest in your business and increase your overall return on equity . The more quickly you can get paid allows you to reinvest in further sales for your firm, those sales create more profits.
If you complete a receivable factoring agreement you have successfully negotiated a great coup – what is that coup? You have in essence provided your firm with unlimited working capital, because as your receivables and customer backlog of orders grow your cash flow from commercial factoring works lock step with that same growth. The bottom line is that most business owners view cash flow as unpredictable, and commercial factoring removes that unpredictability – you in effect control the cash flow valve – financing all or a part of your receivables when you chose.
Receivable financing is growing all over the world, North American no exception, and certainly in Canada it has been on the rise also. Many clients are in industries which might be viewed by others as ‘out of favor ‘. In general factoring doesn’t discriminate – if you have a receivable you can generate cash flow from that A/R – today!
Some of Canada’s largest corporations use this type of financing – when it comes to larger corporations fancier finance terms like ‘ securitization ‘ are used . Bottom line, General Motors factors, why you shouldn’t. That brings up a further point , which is that we do acknowledge that firms that have particular, unusual, or one of challenges are often the mainstream candidates for receivable financing . So your firm may have had some financial losses, be in a turnaround situation, etc – you are still a solid candidate for this type of business financing.
Factoring is the ultimate in off balance sheet financing – you are simply monetizing your receivables and generating cash instantly. The secret of factoring costs, or their perceived costs, is your utilization of those funds. You can use cash flow generated from receivables sales to pay invoices from suppliers and take a discount, or negotiate better terms and pricing for your products .

When you have additional working capital you can grow sales and revenue and increase profits – that financial flexibility is what this type of financing is all about. Sometimes it is a ‘bridge ‘solution, in certain cases it can easily become your long term ongoing working capital solution.

So whats our bottom line? Simply that you do have choices in working capital solutions. Commercial factoring is one of them. Understanding the true cost of the financing, how it works, and utilizing that cash for the right reasons just might be your best alternative for cash flow longevity.

Speak to a trusted, credible and experienced working capital advisor to ensure you understand the benefits of this unique type of business financing in Canada.

---
http://www.7parkavenuefinancial.com/commercial_factoring_receivable_factoring.html