Finally ! The Mumbo Jumbo Around Factoring & Receivable Financing Costs Resolved
OVERVIEW – Information on factoring costs in Canada associated with a receivables factor credit line
Receivables financing, via a ' factor credit line ' often conjures up two words in the mind of business owner/entrepreneurs and financial managers - Mumbo Jumbo!
Factoring costs and how these facilities work, including the different types of A/R facilities available have often created mass confusion for Canadian businesses searching for a simple solution for cash flow and working capital problems. The solution? Understand what this financing does, how it costs, and identify which of numerous types works for your goals. Let's dig in.
So what is ' factoring financing ‘? At first glance it seems too simple. Selling your receivables as you generate sales for immediate cash. While originally gearing for specific industries factoring no long discriminates - it's available for all commercial receivables in all industry sectors.
Confusion reigns supreme when it comes to the ' cost ‘associated with this method of finance. We think we know the reason - simply that the way commercial factor company prices receivables finance is associated by their clients as an ' interest rate '.
Financing your factor credit line on a daily basis works as follows: A specific amt of the invoice - typically 1.5-2% is deducted when funds are advanced. Clients we talk to take those #'s - multiply by 12... and Panic!
The basic answer here is that the ' price' a commercial lender charges in factoring is simply a cost for using money for typical 30 day term, and annualizing that like a fixed term loan with an interest rate is a poor comparison. It's not a loan, and by the way those factoring costs become even lower when you use the cash within that period to take your own supplier discounts, negotiate better vendor prices, and lower the cost of carrying your receivables, which have a true cost associated with them that most owners don’t always consider.
When do you decide to finance your A/R through a non bank 'factor' solution? The factors (no pun intended!) we consider when we talk to clients are:
Your Rate of return you earn on running and profiting in your business
What amount of cash you prefer/need to have on hand
The amount of negative cash balance, i.e. overdraft that will seriously impact your business
The discount fee or ' price ' that factoring firms will charge you
Is there one factor credit line solution that stands out head and shoulders above the rest? Here’s your best choice and why. It's called CONFIDENTIAL RECEIVABLE FINANCING and it's ' confidential ' in that your clients or vendors have no notification of how you are doing your financing. It's your competitive edge while receiving all the benefits of this method of cash flow financing.
So what about some more of that Mumbo Jumbo?! When you're not working with a trusted advisor in business financing you just might find you're a little ' befuddled' around the different types of facilities the industry offers - they include”
A/R DISCOUNTING
FULL NOTIFICATION FACTORING
REVERSE FACTORING
NON – RECOURSE FACTORING
SPOT FACTORING
.... All of which do the same thing - finance your A/R with different nuances around day to day financing of your sales. Heaven forbid we disparage anyone in the industry , but keep in mind that many firms only offer 1 type of this method of financing – leaving you unclear on your other options at a time when you need cash the most .
Looking to clear up some of that Mumbo Jumbo? Seek out and speak to a trusted , credible and experienced Canadian business financing advisor who can assist you with your Receivable finance needs.
7 Park Avenue Financial :
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 . Info /Contact :
7 PARK AVENUE FINANCIAL = CANADIAN RECEIVABLE FINANCING AND FACTORING EXPERTISE
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
