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Inventory and Purchase order financing in Canada are two relatively unknown financing strategies for Canadian business owners and financial managers. The ability to complete an inventory and/or purchase order financing strategy allows you to produce more, distribute more effectively and in a cost-efficient manner, and also to buy smarter.

The ability of your firm to both buy smarter with additional capital, plus maintain the right level of inventories is a key factor in competitive success in your industry. INVENTORY AND PO FINANCING can be a stand-alone finance solution, or it can potentially be complementary to your current business financing.

The inability to secure supplier credit in the capacity your company needs is a constant challenge for many business owners. Vendors may often impose payment terms and conditions that simply can't be met and ultimately affect your ability to grow the business and profits. Sudden growth opportunities must be capitalized on or they go to your competitors.




Business owners and financial managers are required to determine what is their optimal financing for their inventory or client orders. Companies with solid P O 's from reputable clients are excellent candidates for PO Finance, while a general manufacturer who desires to build inventory levels on a constant basis should investigate the inventory finance solution.

KEY POINT - The least expensive form of financing is Supplier Financing - so the ability to get extended terms from valued suppliers is in fact the optimal solution, but often not available, necessitating the use of a funding company.




The ability to accept large new contracts as well as the ability of fulfillment to meet your client needs is the true benefit of INVENTORY/PO Finance and the services of inventory financing companies in Canada. Many firms that utilize this method of financing also have the ability to expand into the U.S. or other international markets, opening up massive opportunities for growth.

The ability to have access to capital and enter into new or foreign markets can be a game change to sales and profit growth for any business, Having financing in place to meet purchase order demands allows your firm to negotiate the best pricing and discounts available - in effect, you are ' pre-approved!

International purchase order finance can also benefit from the assistance of the Canadian government which has a mandate via EDC to supplement financing needs for Canadian exporters. A variety of industries can utilize this method of CANADIAN BUSINESS FINANCING and the ultimate solution is always tailor-made to your specific product and customer needs via a capable financing company partner.


P O Finance ensures that the financing in place is properly aligned with your payment terms to both your vendor as well as receipt of payment from your client. Numerous currency exchange issues are also dealt with within the PO order


It is important to understand both the similarities and differences in P O Finance as well as inventory finance solutions. Both function differently.

WHAT IS P O FINANCING?

Purchase order finance is directly related to a specific purchase order or contract and in essence, covers the goods directly related to the purchase order/contract. As a general rule only finished goods are financed under the P O funding mechanism, so no changes or modifications are allowed for the product. The entire process allows your supplier and vendor to be paid.
As a general rule purchase order financing is not for building inventory levels so a general manufacturing firm looking to increase inventory levels via financing would not look to PO Finance.
Purchase Orders are closed when product is shipped and accepted by the end client and invoicing creating a receivable occurs. At that point the a/r directly related to the order if financing in the normal course of business, depending on how the borrower funds receivables via a bank or financing companies in Canada.

Inventory Financing & Inventory Companies

Companies looking to leverage capital for build-up of inventories look to a sole inventory finance facility. The facility can be ' stand-alone ' or as part of a business line of credit or asset based lending facility. Therefore the inventories being financed are not specifically related to any one specific client. It is really a working capital solution for that critical part of your current assets on the balance sheet - inventory!

 Commercial finance lenders or a full service factoring company may choose to visit the borrower on a regular basis to ensure inventory is adequately maintained - companies should be capable of producing inventory reports and ensuring they have proper inventory accounting in place. For larger deals a lender might insist on a PERPETUAL INVENTORY SYSTEM being in place. Inventory can be a major portion of a company's cost of goods sold. ( COGS ). The ability to access capital to fund inventories is challenging and the ability to turn inventories is key to long term financial success.




One of the largest costs when it comes to operating a business in Canada is being able to purchase inventory. However, purchasing quick-turnaround inventory can be difficult for a new business owner. This is where inventory loans come into play.



Companies that tend to look for inventory solutions are distributors and manufacturers. Unlike our     P O Financing example inventory can be in various forms, which typically are raw materials, work that is in progress, and of course finished goods.

In the P O finance process credit adjudication is made on your firm and as well who you client and supplier are key aspects of the final approval to finance decision. When it comes to inventory is all about the valuation of your inventory vis a vis potential liquidation values in event of default from the bank or non-bank commercial lender.

As a general guideline a purchase order financing company will cover approximately 75% of the order from your client. Financing is directly related to the payment to your supplier. For most firms this will typically cover the majority of costs related to your order and it assumes that your company has good gross margins. P O Finance doesn't work well with low margin transactions as the transaction will not cover the additional financing costs. So have a gross margin in the 25-30% range is very desirable for this method of financing.

Companies that require general inventory financing for their ongoing business can get anywhere up to 70% of the agreed upon liquidation values of the inventory. In many cases some sort of third party appraisal might be required, but in general many inventory financiers are very familiar with inventory values and have significant expertise in certain industries. As a manufacturer your goal is to maximize on the funding value of the inventory.



Clients of 7 PARK AVENUE FINANCIAL ask us how they can finance inventory more effectively in their Canadian operations. Inventory financing in a traditional manner had your firm acquiring an inventory facility as part of your Canadian bank operating facility. If you are successful in obtaining such a facility one of the challenges is simply that this level of inventory margining is not sufficient to meet your needs. The very simple reason for this is that the traditional chartered bank does not necessarily understand inventory lending, which requires a unique focus and specialized knowledge of a wide variety of industries.


The best solution for an inventory financing facility in Canada is actually a dual solution.
You should finance inventory separately outside of your bank arrangement – this will give you additional margining with a finance partner who understands your industry and inventory financing needs. The other solution is to combine the inventory financing within a non-bank asset based lending facility that provides you with maximum margining on both inventory and receivables. Your facility operates just like a bank line, but you are receiving maximum liquidity via higher margining of both inventory and receivables.


By higher margining we simply mean that if you were getting nothing or say 25-30% on your inventory credit line you will probably be in a position to now receive between 40-80%. What does that mean? Of course, it signifies greater cash flow and working capital for the Canadian business owner.


A ‘true‘ inventory financing facility will now include margining against all three types of inventory:


- Raw materials

- Work in Progress

- Finished Goods


We caution you not to enter into an inventory financing facility whereby your inventory must be stored at a third party warehouse in order to receive financing consideration. We do not recommend clients pursue this type of facility.


A solid inventory financing facility will allow you to grow sales and increase your working capital base.


With respect to purchase order financing this is clearly another financing strategy that has emerged as growing and more popular in the Canadian business environment. It is not difficult to understand its popularity. Consider your firm has received a large domestic or international order but does not have the working capital ability to properly produce and deliver that order.


More often than not that is simply because of the cash flow cycle – your order is large, you require inventory and equipment to produce the order, after you have produced it you have to bill the order, and then, of course, you wait to collect your receivable. That whole process can easily take 60-120 days in any firm.


With purchase order financing your supplier is paid directly by the P.O. financier. You then receive materials and generate products for your customer. When you bill your customer that invoice must be discounted immediately in order that the purchase order financing firm gets paid. P.O. financing works best when you have a small number of suppliers, and you have good gross margins that can sustain the additional cost of financing the purchase order and then the receivable. It allows you to grow your business and stay significantly more competitive.

Almost any size or type of firm is a candidate for purchase order finance solutions, even less established or smaller firms - as a general rule in order to qualify for financing of inventory a firm should be established and have reasonable financials.

Many inventory finance needs can be accommodated as part of a business line of credit that finances both receivables and inventory as part of the facility. These solutions can come from factoring companies or asset based lending companies. The process of purchasing more inventory via an asset-based line of credit frees up capital for additional purchases. As your receivables and inventory turn you purchase additional products to sell. Firms that have unsecured credit lines have the ability to purchase goods in the normal course of their business.

WHY DOES INVENTORY FINANCE & PO FINANCE WORK?

Alternative lending solutions that we have described work for business for some very fundamental reasons :

Alternative finance is generally much easier to get than traditional bank financing, so solutions such as a receivables loan or non-bank credit line are very accessible

Inventory, a/r, and P O Financing ability grow almost automatically as your business opportunities grow

The ability to leverage asset financing often not available in traditional finance increases cash flow and working capital growth to fund day to day operations and growth opportunities



Business Funding via Purchase order financing, as well as inventory financing in Canada, are ‘boutique‘ in nature. We strongly recommend you investigate the benefits of theses financing strategies by talking to an experienced and credible advisor in this area of 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

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.



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. He is an experienced

business financing consultant

.

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 financing 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.


Click here for the business finance track record of 7 Park Avenue Financial







Stan Prokop
7 Park Avenue Financial/Copyright/2020

Inventory And Purchase Order Financing In Canada

Quick Way To Solve Lack of Bank Financing ? Receivable Financing Companies

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Factoring Facilities - The Way Towards Unlocking To More Cash Flow

Receivable financing companies just might be the ' new and improved ' solution to your business cash flow challenge. Factoring companies are providing solutions that in many cases Canadian chartered banks are unable to provide based on their more severe credit requirements for borrowers.

Why then should a business owner of financial manager be looking at a receivable financing facility ? That's a typical question posed by business owners who sit down with our firm to discuss their finance challenges.

The simple reason is pretty basic -

accelerated business cash flow

. From the day you generate an invoice and make a sale your company is eligible for immediate cash. And the good news is that you can finance all your sales and invoices, or only partially draw on a basis that suits your needs. Most companies have their own cash flow cycle, including the seasonality of the industry they are in.

We have mentioned that in spite of accounts receivable financing rates ( they are higher than bank financing ) this type of corporate finance solution has become the de facto alternative to traditional business credit lines. More so for the small and medium sized business in Canada, also know as the ' SME ' sector. But don't be surprised when we tell you than many larger firms use a flavor of this method of finance also.

Why is being ' cash flow positive ' so important in today's biz world? Simply because competition is tougher than ever and your ability to enhance your reputation with suppliers and customers is critical. It gives your firm 'professional visibility '.

There are in fact

other forms of short term cash flow financing including sale leasebacks, financing sr&ed tax credits, short term working capital loans

based on solely your sales volume, etc . A/R factor financing collateralizes your receivables, but not other assets.

Business clients will always ask if there is an ' upper limit ' to the amount that factoring companies will provide against their sales. The answer is there is no upper funding limit! Your sales revenue becomes almost an automatic ATM machine!

If there is one solution that we recommend against all others for a receivable financing facility it's a ' Confidential ' facility . It allows you to bill and collect your own receivables and achieve all the benefits of this type of solution .

If you're focusing on almost daily ' cash flow survival ' it might be time to recognize the finance solution is right in front of you - A/R finance !

Seek out and speak to a trusted, credible and experienced Canadian business financing advisor with a track record of success in business finance.







7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !

Factoring Receivables – Factoring Companies That Don’t Charge Interest in Canada

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Harnessing the Power of A/R Finance in Canada

Information on factoring receivables & factoring companies in Canada. Knowing and understanding the cost of a/r finance in Canada is key to alternative finance solutions

More and more Canadian business owners and financial managers are considering factoring as a viable alternative financing solution. Everyone seems to tell you that ‘factoring is expensive ‘. If that’s the case why would you want to choose this financing solution? Even moreso, is it even remotely possible to achieve interest free factoring or factoring at zero cost? Let’s show you why that premise is defensible and we will let you decide.

If you are a small or medium sized business you know the true value of financial serenity when you have positive working capital and cash flow. Actually, cash flow is great, if you have positive working capital that simply means that you have a major investment in accounts receivable and inventory, and that isn’t necessarily great, especially if your balance sheet accounts such as receivables aren’t turning over every 30 days. Does anyone ever pay in 30 days anymore? We don’t think so, that’s for sure.

When your firm is able to more efficiently used cash flow generated from accounts receivable you have easier ability to grow your business. In fact as a business owner you quickly realize that the single largest asset on your books is often accounts receivable. In the current economic environment it takes easily one, often two, and sometimes 3 months to collect the average receivable. When you delay payments to suppliers you are increasing your cash flow from operations, when you grant credit to your customers you are decreasing that same cash flow – it’s a daily battle that plays out every day.

Factoring, or receivable financing allows you to collect and immediately invest those funds back into your business.

A quick example offered by a firm called the Receivables Exchange (U.S. based) is as follows –

Let’s say your firm earns 20% on the money it invests in itself, therefore in 44 days your firm can earn a 2.2% return.

Now let’s get to the root of our premise. Factoring companies don’t charge ‘interest ‘per se, because you are not borrowing funds. You are simply monetizing your receivables at a discount for immediate cash today. Let’s use a typical factoring discount rate of 2%, which is certainly not uncommon. That’s a 30 day rate. There is better pricing, and there is higher pricing.

But look at what we are saying – if you can immediately, on the same day you generate an invoice get cash , re invest in your business , and earn a profit, ( we will use our example of 2.2% return in 44 days ) haven’t you in effect achieved zero interest charges on your working capital financing .

Let’s make a more clear and dramatic point – Use our example again of a 2% discount fee for 30 days. What if your receivables for the month were $ 300,000 and you were factoring them at our 2% discount rate. If you have immediate cash for that $ 300,000.00 do you think you could pay major suppliers immediately and subtract 2% for their stated net 30 day payment terms. Also, do you think you could meet with your major and valued suppliers, advice them you were in a position to pay cash on the basis of getting better pricing, and would they accept! We hear the saying ‘cash in king ‘everyday in business – after the 2008 economic meltdown Cash ruled supreme. By offering to pay your suppliers more promptly and buy in greater quantities we have had many clients tell us they have achieved as much as a 5% saving in some cases.

Let’s recap the premise of our information. It’s simpler that it may sound:

**Factoring offers you immediate working capital, and purchases your invoices at a discount – it is incorrect to view these funds as a loan, or an interest rate per annum.


** If you got the typical fee of 2% as a discount charged on factoring by your factoring company and had unlimited cash flow and working capital could you purchase more effectively and pay suppliers more promptly, taking a discount all along the way . Yes we believe you could.

You will never get a letter from a factor firm that states you are being charge no finance charges – but we have effectively shown that the cost of that financing, balanced against carrying your customers and being able to take supplier discounts and purchase more effectively can add thousands of dollars to your bottom line . And at the same time you have removed the business person oft greatest worry – lack of working capital.

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

Receivable Factoring – The Two Things You Need to Know !

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We're Looking Inside the Box on Canadian Receivable Financing- Here's What We Found!

Information on A/R Financing Solutions In Canada

Canadian business owners and financial managers can make some big, painful, expensive and time consuming mistakes when they choose the wrong factoring facility.  In a previous article we highlight three popular misconceptions about factoring – they were:

-Factoring is the pledging of receivables

- Factoring is expensive

- All receivable financing services and facilities are essentially the same

We provided information that clearly showed that there are a number of fallacies and myths about the factoring of receivables in Canada, and that the prudent business owner needs to investigate the true costs and ‘how to’ of factoring in Canada.
Let’s now share two other major misconceptions around this method of business financing in Canada. They are as follows:

• Factoring is very intrusive to my customers and suppliers (NOT NECESSARILY!)

• All factoring companies are essentially the same (WRONG!)

Before we examine these two popular business misconceptions lets take a very brief step back and recap what receivable factoring is.

Canadian business, more than ever, needs cash flow and working capital to survive. Many traditional sources have either disappeared, dried up, so to speak, or simply are not available in the current business climate. Primarily we are of course referring to generous bank lines of credit for receivables and inventory. Business must go on, so how do business owners resolve these temporary cash crunches. One alternative is factoring.

The other alternative is a term loan, which has fixed payments, and generally extends for a period of three to five years. So the business owner must decide whether to focus on short term working capital – i.e. a factoring solution, or permanent working capital via a term loan or more owner equity.
So now let’s debunk out two myths surround factoring.

In a traditional what we will call the U.S. model of factoring we will agree that factoring, otherwise known as receivable discounting is in fact intrusive. The factor firm has the ability to in essence take control of your entire receivables function, including invoicing your customers with notification from themselves, dunning letters and calls for collection, and the insistence of payments being made directly to their firm. Is this intrusive – we certainly think so.

 Is this the only alternative for Canadian business – absolutely not? Prudent business owners will seek the advice of an experienced, trusted, and credible advisor in business financing who will structure a facility that allows them to collect their own receivables. Under this scenario they will reap the benefits of factoring ( Immediate cash, increased working capital ) while at the same time preserving customer good will . So the bottom line is, yes, if you enter into the wrong type of facility, factoring will be deemed intrusive, but you have options and you should investigate those with professional assistance.


Now let’s cover our final misconception – ‘all factoring firms are the same’. The reality is that if you are not an expert in this unique form of business financing then you can probably be forgiven for having talked to a few firms and drawn the conclusion they have the same product and service offering. The reality – Nothing could be further from the truth. Factor firms in Canada are sorted by geography, ownership (many are just branches of U.S. and U.K.operations) their own capital and borrowing structure, and, most importantly, how they do business on a day to day with you and your customers.

When we talk to clients about factoring solutions we recommend they focus on firms that have a nominal holdback, competitive rates, and , most importantly, are comfortable in allowing you to do your own billing and collecting . Naturally at the same time you are in a position to reap the key benefits of receivable financing, which is cash flow and working capital leverage you did not have.


Talk to an expert, sort out the good from the not so good, and focus on a receivable financing facility that meets your cash flow and growth needs. That’s solid business financing.




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