Tweet
OVERVIEW – Information on receivable financing in Canada. A factoring credit line offers numerous benefits to business liquidity and growth - here is why and how!
Receivable financing in Canada continues to play an important role in the newer ways to finance a business. Also know by the general term "Factoring ' this solution works best works best when it involves ' growth ' - simply speaking clients tell us that they cannot access traditional financing to handle new sales opportunities . Let's dig in!
A/R financing is one of the components of asset based lending. It focuses solely on the immediate conversion of your receivables into cash. Your company can also combine A/R finance with inventory and equipment to get a total business credit line solution - it's the bank alternative.
When businesses choose factoring or receivable financing (also known as invoice discounting) as a financing mechanism they have options on how to structure that facility. The challenge - working your way through the different product and service maze that's lumped together in that term ' factoring '!
Let’s recap why you would consider non bank commercial A/R financing in the first place. Some of those reasons might be:
" to generate additional working capital
" to purchase another firm, utilizing receivables as a key part of your overall financing strategy
" To reduce payable and improve relations with suppliers
" To access cash flow and working capital without taking on debt (factoring is not borrowing - you are simply monetizing more quickly your largest liquid asset)
" To utilize funds for the down payment or purchase of equipment (Note - we don't recommend to clients that they use short term working capital to fund long term fixed assets
" In some cases your firm might be re organizing or coming out of a difficult period
Understanding why this solution works is all about what's known as your
Cash conversion cycle - you have operating cash tied up in receivables.
Part of your overall growth strategy might be to offer extended payment terms to key credit worthy customers. To do that you can utilize factoring by offering those terms, yet at the same time converting the receivables into cash.
Additional cash from factoring can be used to purchase more inventories, which is in term converted into receivables, allowing your cash conversion cycle to come full circle. In simple terms it's all about tracking how a real dollar of cash moves through your company.
Clients ask us what size their firm has to be in order to be considered for this type of facility. The reality is that it works for firms of any size, whether your firm has 250k in sales or 25 Million. (Even some of Canada's largest firms factor their receivables, you just didn't know that!) That includes both public and private companies by the way.
When considering this type of financing option cost is often raised as an issued by our clients. So what does factoring cost? In Canada the cost ranges from 9% per annum to approx 2%. Clients focus on these rates as annualized interest costs, when in reality the best way to look at them is reduction in gross margin with offsetting benefits of immediate cash flow and working capital.
Here's how we prove to our clients how over a long period of time this financing solution can offset perceived higher costs. Are any of the following important to your term?
" Immediate cash flow and working capital in an unlimited fashion (if you have sales you can always finance those sales - you don’t have a limit per se
" Better supplier relations
" Ability to offer extended terms to customers that generate good profits for your firm
" The ability to now take supplier discounts and take advantage of better pricing based on your ability to pay cash
When evaluating your options the best advice we can share is to understand what’s happening in the Canadian factoring market. Work with a trusted advisor who can take you through the various industry nuances such as:
" Recourse factoring
" Full notification
" Non notifications - We consistently recommend CONFIDENTIAL RECEIVABLE FINANCING as the best solution in Canadian A/R finance
" Annual contracts or open contracts
" Pricing based on your facility size and customer base,
In summary, naturally Canadian business owners and financial managers realize there is no one single Holy Grail of business financing.
But if you want immediate cash flow, no focus on your balance sheet by the factor firm, better supplier relations, ability to finance your business as you grow, etc .. then you should consider factoring as an option. The weight of evidence might just suggest that factoring is the right financing right now! for your business .
Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with the right cash flow solution for your business.
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 10 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
Office = 905 829 2653
Email = sprokop@7parkavenuefinancial.com
'
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
