Mastering Cash Flow: Unveiling the Power of Invoice Factoring Companies Cash at Your Command: The #1 Solution For Factoring Receivables In Canada

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YOUR COMPANY IS LOOKING FOR A CANADIAN INVOICE FACTORING COMPANY FOR BUSINESS FINANCING! 

Beyond Banks: The Rise of Invoice Factoring Companies in Canada

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Invoice Factoring Companies: Your Path to Factoring Receivables | 7 Park Avenue Financial

 

From Stress to Success: How Invoice Factoring Companies Transform Businesses

 

INTRODUCTION

Working with experts is preferred in any aspect of business or personal life. When considering alternative financing options like invoice factoring for accounts receivable, seeking the guidance of a trusted and experienced business advisor is recommended.

Invoice Factoring in Canada:

 

Factoring, also known as receivable discounting or financing, is a rapidly growing method of business financing in North America, including Canada. It's used by various businesses, from startups to established companies, that might face challenges accessing traditional financing.

 

Invoice factoring refers to the invoice finance solution in which a business "sells" a portion or all of its unpaid invoices to a third party. This method enhances cash flow and revenue consistency within the company. The factoring firm pays most of the invoiced amount upfront and then collects the payment directly from the business's customers.

 

 

Invoice Factoring Example : Here is an example of how invoice factoring works!

 

 

1. Outstanding Receivable Amount: $100,000
2. Advance Rate on the Receivable: 90%
3. Factoring Rate: 1% per month
4. Collection Period: 45 days
5.  

Step 1: Calculate the advance amount using the 90% advance rate on the $100,000 invoice.

• 90% of $100,000 = $90,000

The factoring company would pay your business $90,000 immediately.

 

Step 2: Determine the factoring fee for 45 days, given the rate of 1% per month.

• 1% for the first 30 days = 1% of $100,000 = $1,000
• For the additional 15 days, you would calculate an additional 15/30 * 1% = 0.5% of $100,000 = $500

The total factoring fee for 45 days would be:

• $1,000 + $500 = $1,500
•  

Step 3: When the factoring company collects the payment from your customer pays after 45 days, they will remit the remaining balance to you, minus their fee:

• Remaining 10% of invoice: $10,000
• Minus the factoring fee: $1,500

The amount remitted to you:

• $10,000 - $1,500 = $8,500

So, the overall amount received by your company through the factoring process would be:

• Initial advance: $90,000
• Amount remitted after collection: $8,500

Total: $98,500

In summary, by factoring a $100,000 receivable with a 90% advance rate and a 1% per month factoring rate/factoring fee, your company would receive $98,500, with the factoring company earning $1,500 for providing the service.

 

Businesses see that the factoring cost of invoice discounting allows them to immediately reinvest cash from receivables into further investments in their business, such as purchasing equipment, funding day-to-day operations, etc.

 

 


Accounts Receivable Financing - Your Working Capital Solution: 

 

Invoice factoring is a crucial source of working capital and cash flow for businesses, mainly when dealing with high receivables and inventory levels. It's a versatile financing solution that works well both in challenging economic times and during periods of growth.

Challenges in Choosing a Factoring Company:
 

The challenge lies in understanding how invoice factoring companies' pricing, practices, and procedures work. Proper assessment of these factors for factoring services is essential to making the right choice and understanding and managing the payment terms in your accounts receivables.

 
LOOKING FOR THE BEST RECEIVABLE FACTORING SOLUTION TO IMPROVE CASH FLOW? 

Confidential Receivable Financing, commonly called Non-Notification Factoring, is a specialized form of invoice factoring for ' selling unpaid invoices " that offers businesses a discreet and advantageous financial solution.


In this arrangement, while businesses still leverage their outstanding invoices to secure immediate working capital, they maintain control over their customer relationships and collections process. Unlike traditional factoring, where customers are notified of the arrangement and payments are collected by the factoring company, non-notification factoring operates confidentially.


Borrowers continue to manage their invoicing and collections internally without disclosing the factoring company's involvement. This approach ensures that the business maintains its established rapport with clients and preserves the confidentiality of the financial transaction.


The key benefit to the borrower lies in the ability to access capital while retaining a sense of normalcy in client interactions, maintaining control over collections, and safeguarding the business's reputation in the eyes of its customers.



Benefits of Receivable Financing:

 

The primary advantage of invoice factoring is the quick access to immediate payment via funds from the upfront cash advance as soon as an invoice is generated, assuming the invoice is legitimate and the related goods or services have been delivered.

 

Key Pricing Considerations:

 


        Advance Rate: The amount you receive immediately into the business bank account after invoicing can vary between 75% and 90%  for many independent factoring companies of the invoice value.

        Discount Fee: Often confused with an interest rate, factoring fees charged by the factoring company are expressed as a discount rate. This is the cost of using their services.

        Time to Pay: The time it takes for your customers to pay affects your financing costs. If your payment terms are 30 days, but customers pay in 60-90 days, your costs increase - Higher factoring fees are directly related to asset turnover and good a/r management on the company's outstanding invoices.
 

 
CONCLUSION

 

The decision of which factoring company to choose should be informed by the advice of a business financing expert.

 

Just like relying on accountants or lawyers, working with professionals in this field ensures that you understand how factoring benefits your specific business model and which factoring company aligns with your needs. The landscape of factoring companies in Canada is diverse, with Canadian and foreign-owned firms of varying sizes. Not all practices from other regions will work seamlessly in the Canadian context.

Small business owners know the importance of expert advice and careful consideration when selecting an invoice factoring company for business financing solutions.

 

Call 7 Park Avenue Financial, a trusted, credible, experienced Canadian business financing advisor who can assist you with your business finance needs. We've been helping small business owners / SMEs for over 20 years.

 FAQ: FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION 

 

 Is invoice factoring the same as a business loan from a bank - Factoring vs Bank Financing


No, invoice factoring involves selling your outstanding invoices to a factoring company for immediate cash. It's not a loan or an unsecured business line from the bank,  so you don't accumulate debt on the balance sheet when you cash flow an outstanding invoice from independent factoring companies under a factoring agreement.


Can startups with limited credit history benefit from invoice factoring


Absolutely! Startups often use invoice factoring to secure quick cash flow without relying on a solid credit history. The focus is on your customer's creditworthiness, and the factoring company pays your company the same day as an invoice is generated to clients. Companies choosing non recourse factoring finance can benefit because the factoring company assumes risk and bad debt.

Standard recourse factoring has the company continuing to maintain credit and collection risk in their client base. The best invoice factoring companies offer both types of financing. Small business owners can also utilize ' spot factoring ' to finance ' one of ' invoices.


Are there industries where invoice factoring might not be suitable?


While invoice factoring can be helpful to across various industries, businesses heavily reliant on one-time sales or consumer transactions might find it less applicable, as recurring invoices are a primary factor for most factoring companies.


How do invoice factoring companies determine the discount rate?


Discount rates for debt factoring/invoice financing for unpaid invoices are influenced by factors such as the industry, the volume of invoices, your customer's payment history, and the terms of your invoices. Discussing these details with a factoring company helps determine the rate and overall factoring costs.


Do factoring companies handle collections and customer interactions in accounts receivable factoring?


Yes, many factoring companies handle collections on your behalf. They communicate with your customers to collect payment. This can free up your time and resources for other business operations as the accounts receivable factoring company assumes and monitors collections.

 

 

 

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Benefits Of Invoice Factoring And Factors That Affect The Cost Of Factoring Receivables

Cash Flow Challenges Become Your Regular Routine?

Here’s A Solution If You’re Serious About Changing That

OVERVIEW – Information on the cost of factoring receivables in Canada. Invoice finance is currently the most popular method of accessing immediate cash flow finance sales activity

Invoice factoring, and other versions of receivable finance / asset based financing in Canada, and the cash flow challenges that come with running a business remind us of that classic movie ' BEING THERE' starring Peter Sellers. Sellers, playing a ‘savant’ gardener in the movie says " and then we get spring and summer again”!


In the movie he has a ' routine ' in life - things are always the same. How then can Canadian business owners and financial mgrs break out of the constant cash flow challenge cycle? Receivable finance is one clear solution to that problem.
As an owner/mgr you know the drill - working capital is tied up in your A/R and inventory. Can invoice financing help untie that capital.

Let's address that issue around the following key points: Exactly what is factoring, what are the benefits for your firm, what does it cost, and how does it work. That's a mouthful, but your understanding of these key issues could be the first step in your better understanding of one of the most popular methods of business financing today in Canada.
Factoring is the method by which you ' sell ' your receivables as soon as you issue them. Selling anything gets you ' cash ' and that's the core premise of factoring. The largest, most successful corporation in Canada also offloads their receivables. They do that under a fancier method - securitization - at the end of the day it’s the same thing - Selling you A/R constantly as you make sales to generate instant cash.


Do you have to sell your receivables? Of course not - you can wait 30/60/90 days for your customers to pay you - but you've been there already and that's not working!


So what then is the main benefit of factoring solutions? Essentially it's unlimited working capital in cash flow as you grow your sales. How can we say unlimited cash flow - well, simply because if you have receivables you will always have immediate cash for them. Cash flow problem solved!


Part of the problem in our clients understanding the cost of factoring is that they view it always as an ' interest rate '. A/R commercial finance firms don't call it that - it is a discount rate. They purchase your receivable (either on, some or all of your invoices) at a discount - That discount in Canada is anywhere from 1-2%. The norm tends to be closer to 1.5 - 2%. So a best case scenario is giving up $150.00 on a $ 10,000.00 receivable.

So who in fact ' qualifies' for this type of financing? The reality is that if you have receivables you qualify! This type of financing covers pretty well every industry in Canada. There seems to be a number of industries that are always using factoring - i.e. trucking/transportation, staffing, security guards, etc - but don't be confused by that point - if you have a receivable, Canadian, U.S. or otherwise , it can be financed - or in our lingo ' sold' and ' cash flowed'. Even international receivables can be financed with a few modifications to the program.


So are there alternatives to factoring? Of course you can arrange more traditional financing via a bank, Canadian credit union, etc. However, that type of financing comes with stringent requirements, including solid financial performance, personal guarantees, other collateral, etc.


A/R finance facilities can be efficiently put in place - the process simply involves a basic application and the documentation to register the facility, in a similar manner that any bank would, i.e. a security agreement on your receivables, etc.
One other key benefit is facility size - at a bank type revolving line of credit you have of course a limit, and you can't exceed that limit .That concept goes out the window with your receivable financing facility because your limit grows lock step with your sales and receivable investment. That's true unlimited financing!


It always comes down to cost and the overall pricing of your facility will depend on several factors - the overall size of your receivable portfolio, its credit quality, how your customers have paid traditionally, etc.


We recently met with a customer who advised us that their total all in rate with a Canadian bank, including the rate and fees for all services, etc, was close to 11-12% when you factor everything in. Let's say your factoring rate was 2% per month. And lets also say you now had unlimited cash to pay suppliers promptly, take prompt payment discounts, and negotiate better pricing.
There really isn't in most cases that much more difference in factor pricing and bank pricing when you weigh in all the comparables.


Speak to a trusted , credible, and experienced business financing advisor who can assist you in determining the best A/R pricing for your firm , and allow you to focus on benefits that you can reap from this growing in popularity 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

Benefits Of Invoice Factoring And Factors That Affect The Cost Of Factoring Receivables

You know the drill - you have all the working capital you need already - unfortunately its tied up in receivables - so how can invoice factoring help your firm and what is the cost of factoring receivables , because from what you have heard its expensive .

Let’s address those issues around the following key points: Exactly what is factoring, what are the benefits for your firm, what does it cost, and how does it work. That’s a mouthful, but your understanding of these key issues could be the first step in your better understanding of one of the most popular methods of business financing today in Canada.

Factoring is the method by which you ’ sell ’ your receivables as soon as you issue them. Selling anything gets you ’ cash ’ and that’s the core premise of factoring.

Do you have to sell your receivables? Of course not - you can wait 30/60/90 days for your customers to pay you - but you’ve been there already and that’s not working! That brings us to the main benefit of factoring, which is working capital and cash flow in an almost unlimited fashion. How can we say unlimited cash flow - well, simply because if you have receivables you will always have immediate cash for them. Cash flow problems solved!

Part of the problem in our clients understanding the cost of factoring is that they view it always as an ’ interest rate ’. The factor firm does not view or call it that - it is a discount rate. They purchase your receivable (either on, some or all of your invoices) at a discount - That discount in Canada is anywhere from 1-3%. The norm tends to be closer to 2%.

Clients will always ask if their firm ’ qualifies’ for this type of financing. The reality is that if you have receivables you qualify, and this type of financing covers pretty well every industry in Canada. There seems to be a number of industries that are always using factoring - i.e. trucking/transportation, staffing, security guards, etc - but don’t be confused by that point - if you have a receivable, Canadian, U.S. or otherwise , it can be financed - or in our lingo ’ sold’ and ’ cash flowed’.

We mentioned the key benefit of a factor facility is cash flow - you can of course arrange more traditional financing via a bank, Canadian credit union, etc. However, that type of financing comes with stringent requirements, including solid financial performance, personal guarantees, other collateral, etc. You can typically qualify for a factor facility in a week or so - the process simply involving a basis application and the documentation to register the facility, in a similar manner that any bank would, i.e. a security agreement on your receivables, etc.

One other key benefit is facility size - at a bank type revolving line of credit you have of course a limit, and you can’t exceed that limit .That concept goes out the window with your receivable financing facility because your limit grows lock step with your sales and receivable investment. That’s true unlimited financing!

It always comes down to cost and the overall pricing of your facility will depend on several factors - the overall size of your receivable portfolio, its credit quality, how your customers have paid traditionally, etc.

We recently met with a customer who advised us that their total all in rate with a Canadian bank, including the rate and fees for all services, etc, was close to 11-12% when you factor everything in. Let’s say your factoring rate was 2% per month. And lets also say you now had unlimited cash to pay suppliers promptly, take prompt payment discounts, and negotiate better pricing. From our perspective there immediately isn’t that much more difference in factor pricing and bank pricing when you weigh in all the comparables.

Speak to a trusted , credible, and experienced business financing advisor who can assist you in determining the best factoring pricing for your firm , and allow you to focus on benefits that you can reap from this growing in popularity business financing in Canada .

--------------

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/invoice_factoring_cost_of_factoring_receivables.html