The Cost Of Factoring Shouldn’t Be A Hot Potato ? AR Rates And Funding Receivables Is Not What You Thought!

A New Look At Factoring Pricing In Canada

OVERVIEW – Information on the cost of factoring . AR Rates in Canada may not be what they seem when you consider the key issues in funding receivables and sales growth for your company


Does the cost of factoring finance, i.e. AR rates for funding receivables really have to be a ' hot potato ‘?

We don't think so, and here is why.

The cost to finance a receivable of course revolves around the ongoing sale of your A/R at a discount. That discount is essentially the core of our cost perception issue.

Otherwise things are pretty much the same, meaning that in the ordinary course of busines you are still responsible for collecting your accounts in a timely manner, and furthermore, in a worst case scenario, the customer’s inability or refusal to pay your firm still incurs a bad debt for your company. So far so good, right? We should mention that you can get what is known as non- recourse AR finance, but that is obviously a bit more expensive and essentially tied to the concept of credit insurance.

A Finance factor firm is going to look at hopefully the same issues that you look at when you enter into extending credit into your clients - i.e. client references, credit limits, collection history, etc . That's just Business 101 and the reason why large corporation invest hundreds of thousands / millions of dollars into credit and collection departments that will ultimately drive the company’s cash flow and operational results for sales and collections.

Benchmarked against the costs of funding receivables are of course the benefits. They key benefit is pretty obvious; your firm receives cash essentially the same day as you make your sales. You're now in a position to do something that many of your competitors may not be able to do, and that’s to offer terms and credit limits to many of your clients that even your competition might not be able to do.

Second benefit. It's virtually unlimited credit to your firm - you're not going cap in hand to apply or renew Canadian chartered bank lines.

So lets get down to the nitty gritty . The cost of receivable finance. They key point we want to make today is simply that many Canadian business owners and financial managers don't really understand the true cost of what they are paying already , even when they are not factoring . Let’s look at our key example today:

Let's say your firm has a made a $10,000.00 sale and has generated an invoice to your client. Let’s say the customer is very late and pays you in 100 days. If we assume your company can borrow money at today’s rates in the 6% range as an example the cost to carry that receivable, i.e. just wait! is approx. $160.00.

What we have just demonstrated is what is known as the cost to carry a receivable. If your firm had a receivables funding factor facility in place a typical cost to fund that receivable for a 60 day period might be 300.00. With that new found cash that you have obtained immediately you are in a position to take supplier discounts, buy more inventory, generate another sale, and make more profits.

Doing nothing and just waiting for a client to pay, carrying your clients, is obviously not a great thing.

Generally in Canada factors that determine your AR rates and cost of factoring are your sales volumes, average invoice balances, number of clients, and general perception of credit worthiness of your clients and your industry.

Our recommended solution is confidential factoring, which allows you to reap all the benefits we have hopefully noted, with your firm being in control of billing and collections - i.e. no third party involvement.

Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your financial needs when it comes to receivables funding.

7 PARK AVENUE FINANCIAL
CANADIAN RECEIVABLE FUNDING EXPERTISE


Stan Prokop - founder of 7 Park Avenue Financial –

http://www.7parkavenuefinancial.com

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
Info re: Canadian business financing & contact details :

http://www.7parkavenuefinancial.com/ar-rates-cost-of-factoring-funding-receivables.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





























Stan Prokop

Unsolved Mystery? How A Receivable Finance Company Prices The Cost Of Factoring Is Easier To Understand Than You Might Think!

Mystery Solved . A/R Financing Pricing explained .. finally!

Information on the cost of factoring in Canada . How the receivable finance company prices your facility and what you need to do to control and benefit from this pricing

One of the mysteries of Business financing in Canada would appear to be the cost of factoring receivables from a Receivable Finance Company. Should this issue be as mysterious as the search for UFO’s or Bigfoot?

We don’t think so, so let’s explain.

Most business owners and financial manager who consider this method of financing their sales know the very basics - the fact that factoring is simply entering into an arrangement with a receivable finance firm that allows you to monetize or cash flow sales, as you make them . Simple enough, right?

Only a very small handful of issues come into play when you are financing your firm in this manner. The trick though, is your management... and understanding of them! That's where you quickly become a winner or a loser, and we're all for winning. And all of that should not, we repeat, should not be a mystery to you or your firm.

So those issues? They are as follows - you need to negotiate and understand the concept of the ' advance rate ' which is simply the percentage of funds that you advanced when you generate sales invoices. Typically in Canada that should be in the 90% range... your financing is definitely costing more if you are not getting a solid advance rate. In general the quality of your customer base determines that advance rate, but quite frankly some receivable finance companies have a policy or practice of lowering advances to you to increase their profits. So watch out for that one!

In general most factoring in Canada is done on a ' recourse ' basis, which simply means that you are responsible to cover any bad debts. You were anyway, so the only way to avoid this is by getting a facility in place which includes credit insurance. Naturally this is a bit more expensive, but we are always pleasantly surprised at the generally low cost of A/R insurance.

Opportunity cost is a concept that is pretty well always ignored by the majority of businesses who are entering into this type of finance. Why? Simply because there is not direct cost associated with it. but boy is it important for you to understand. That's because your ability to monetize sales over and over again , generating cash on your sale immediately leads to higher profits and better asset turnover, both key concepts that should be considered in your overall cost of finance .

There are usually some modest admin expenses when it comes to entering into this type of facility. These are nominal and should be understood, but hopefully should not be unreasonable enough to sway your decision to embrace factoring in Canada. But, as we said, make sure you know some of those admin fees.

Don't forget also that just because you don't finance your A/R via factoring that you aren't bearing a large cost already. That's because whether you are self financing or in fact have a bank facility you are carrying your clients for 30, 60... even 90 days these days, forcing you to absorb the major cost of financing your A/R.

Who controls one of the major factors inherent in receivable finance? You do! That’s because, for example, that if you are collecting your money in 30 days, as your terms state the cost of financing a $ 100,000.00 invoice is $1500.00 if you have a medium sized facility in place. That seems quite reasonable to us, given that factoring generates all that cash immediately allowing you to almost COMPLETELY! offset your financing cost by taking a supplier discount with your new found cash, negotiating better pricing for goods, or simply selling more by re investing in new sales and larger contracts.

So, the cost of factoring in Canada. Is there a mystery to it? Because of the way many present it there sure is .. but there shouldn’t be. Seek out and speak to a trusted credible and experienced Canadian business financing advisor who can assist you with a receivable finance company solution... that works!




Stan Prokop


Stan Prokop - founder of 7 Park Avenue Financial –

http://www.7parkavenuefinancial.com

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
Info re: Canadian business financing & contact details :


http://www.7parkavenuefinancial.com/cost-factoring-receivable-finance-company.html

7 PARK AVENUE FINANCIAL
CANADIAN RECEIVABLE FINANCE SOLUTION EXPERTISE



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

Can Financing Receivables Ignite Your Business Funding . Cost and Benefits Of Factoring Funding In Canada

Know How To Fire Up Business Cash Flow?



OVERVIEW – Information on financing receivables in Canada. Assessing invoice finance as a finance option , and understanding the cost of factoring a/r in the Canadian business financing marketplace.



We'd all agree there’s a major difference in igniting, and on the other hand, freezing your business credit. We maintain to clients that financing receivables is a key ' igniter '

of cash flow funding in Canada when the Canadian business owner and financial manager is experiencing the business credit freeze !

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 arrangement?

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 doesnt mesh with your day to day operations. By the way, that absolutely doesnt 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!

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 are ' 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 .

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
CANADIAN RECEIVABLE FINANCE EXPERTISE



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/financing_receivables_cost_of_factoring_funding.html

You Can’t Handle The Truth ! Here’s The Deal On Business Receivables Funding And The True Cost Of Factoring In Canada

Understanding Receivable Finance Cost In Canada



OVERVIEW – Information on the costs of business receivables funding , i.e. the cost of factoring funding in Canada . Here’s the right way to look at things.



Most of us recall that iconic ' You can't handle the truth ..' movie moment , and it seems appropriate to us that comment is pretty typical of explaining to clients the costs of business receivable funding in Canada . It can be confusing and complex ... but it should not be!

The cost of factoring in the Canadian marketplace revolves a lot around the terminology used by the industry to educate (or confuse) the Canadian business owner and financial manager.

Part of the confusion results simply, as usual, around misunderstanding the terminology. The receivable finance industry works on a ' discount ' basis, and that is often confused with an implicit interest rate.

In Canada typically the discount rate that your receivables are purchased/ financed typically is in the 2% range. Sometimes more, sometimes less, but for today’s purposes let's use a 2% example.

A number of different factors can influence that rate, some can be influenced by the customer, and others are simply as they are. They include:

Who you are dealing with

The type of receivables funding you are looking for - i.e. recourse/ non recourse, credit insured, confidential facility - We strongly recommend confidential invoice financing to clients, allowing them to bill and collect their own receivables.

The overall credit quality of your company and your receivables- Companies with a strong credit quality receivable base are more appealing than higher risk receivables

The type of industry your firm is in - as an example firms in the construction industry are difficult to finance or factor simply because their receivables are sometimes subject to disputes and even construction liens - In 2008 and 2009 the auto industry was extremely out of favor . Financing a General Motors receivable was actually... difficult. My how things have changed in a few years! but that is business, right?

The size and number of invoices your firm might have on a daily basis. Although its 100% achievable to finance a receivables portfolio made up of numerous small invoices this obviously requires more work and administration from your chosen finance partner

Set up and legal fees - A Business Receivables Funding arrangement is the same as any other business financing arrangement and has associated legal documentation and set up fees involved. These are typically quire nominal in the scheme of things though.

The majority of the confusion around the cost of factoring in Canada revolves around that fact that clients take the actual discount rate, in our example 2% and equate that to a financing rate. They quickly multiply that by 12 months a year and feel they are being charged a very high ' interest rate '.

That is somewhat of a poor way to look at it. Why? Let's illustrate by example. Your suppliers offer you, more often than not, a 2% discount rate to pay their invoice early. You could use the logic that your supplier is losing over 72% per annum for allowing you to pay promptly. Yes, your supplier has basically kind of self factored the invoice you have from them.

Bottom line, you have to view the cost of factoring as a price for using funding, not an implicit interest rate

There are many benefits to business receivables funding in Canada as a solid alternative to accelerate cash flow, grow your company, etc.

Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your financing needs and clarify the true cost of factoring in Canada.

7 PARK AVENUE FINANCIAL
CANADIAN BUSINESS RECEIVABLES FUNDING EXPERTISE


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/cost_of_factoring_business_receivables_funding.html