WELCOME !

Thanks for dropping in for some hopefully great business info and on occasion some hopefully not too sarcastic comments on the state of Business Financing in Canada and what we are doing about it !

In 2004 I founded 7 PARK AVENUE FINANCIAL. At that time I had spent all my working life, at that time - Over 30 years in Commercial credit and lending and Canadian business financing. I believe the commercial lending landscape has drastically changed in Canada. I believe a void exists for business owners and finance managers for companies, large and small who want service, creativity, and alternatives.

Every day we strive to consistently deliver business financing that you feel meets the needs of your business. If you believe as we do that financing solutions and alternatives exist for your firm we want to talk to you. Our purpose is simple: we want to deliver the best business finance solutions for your company.

Showing posts with label factoring financing in Canada. Show all posts

Sunday, May 9, 2021

Factoring Financing In Canada - Reasons To Consider Factoring

How To Crack The Code In A/R Cash Flow Financing

( Immediately ) !

Factoring Financing in Canada has a limited number of options, and factoring is certainly becoming one of them. When we meet with Canadian business owners and financial managers to discuss their working capital and cash flow problems, customers are either self-financing or requiring cash flow assistance, or their current financing needs do not provide them with the working capital and cash flow they require.

Although invoice factoring has a long history and is the way many businesses acquire short-term capital, a ' factoring loan ' does not bring debt to your balance sheet. Here's what you need to know.

THE CHALLENGE OF ACCESSING BANK FINANCING IN CANADA

Canadian banks are among the strongest and most successful in the world - part of that reason is their somewhat conservative stance to Canadian business financing - That conservative stance serves shareholders very well, but certainly doesn’t help small and medium-sized business owners achieve their financing needs.

So where does your business get the cash flow it needs? Long-term borrowing, i.e. what the finance people call 'term debt' is not really the solution for day-to-day operating and working capital needs. Companies generate cash from the 'current assets' portion of their balance sheet. That involves the following asset categories:

Cash

Inventory

Accounts Receivables

Invoice Factoring via commercial factoring companies in Canada focuses on turning receivables into immediate cash. And Yes, there is a cost and a process but those costs and that way of doing business can be properly justified with the help of a trusted and credible advisor in this area of Canadian working capital finance.

When we meet with business owners to discuss their working capital needs it is essential they understand their working capital situation and requirements. You don't need to be a full-fledged chartered accountant to measure your working capital situation and needs.

HOW TO ASSESS YOUR WORKING CAPITAL AND CASH FLOW NEEDS

By taking a few numbers from their financial statements customers can monitor the level of working capital to fund the business, and make payments on any debt the company has i.e. loans, leases, etc.

Those calculations are very simple but not always properly understood or monitored by our customers. For example, determine your current working capital by taking your current assets and subtracting current liabilities - it’s as simple as that. Then monitor this number against the following items:

Sales

Total assets

Total liabilities

By - at least on a monthly basis - analyzing these very basic numbers will show your trends in your working capital needs and any deterioration that might be setting in.

IS INVOICE FACTORING THE SOLUTION TO YOUR BUSINESS CAPITAL NEEDS?

Well, to this point we have discussed the problem - Is ' discount factoring ' the solution? It can be as long as the business owner understands what it costs and how it works. Would the business owner prefer to access cash immediately on making a sale, or wait 30 days to .. yes.. 90 days to collect a receivable? The fast application process and fast funding are why thousands of businesses, including your competitors, use third-party a/r finance via invoice factoring companies.

FACTORING COST? HOW MUCH DO FACTORING COMPANIES CHARGE

Factoring works as follows if you have properly structured a facility for your own particular business model and way of doing business. You simply sell, or ‘factor’ accounts receivable invoices as you generate them. You receive 80-90% of the money immediately, the balance on payment from your customer.

There is of course no 'free lunch' in Canada so a financing fee, or 'discount fee' is deducted from the funds due you. In Canada this can be in the range of 1 to 2 1/2% on average- that is known as the factoring discount. Your ability to negotiate the best fee and the type of facility that suits your daily paperwork is probably going to come from working with a trusted and credible advisor in this area of Canadian Finance.

RECOURSE VERSUS NON RECOURSE FACTORING

How does accounts receivable factoring work when it comes to your credit policy? Canadian businesses can choose to maintain their current bad debt and credit risk policy via a standard recourse factoring agreement, or they can choose to access a non recourse facility which allows the company to transfer the risk to the factoring company at a higher facility cost.

How Factoring Can Make Your Company More Successful

Understanding the basics of factoring in Canada revolves around understanding why a Higher turnover of receivables, i.e. via factoring, is a great indicator of a successful company. Your company is in a better position to invest funds, pay creditors in a timely fashion, and grow and profit your business.

If your firm could sell more because it had the working capital to finance receivables and inventory and purchase more goods you are turning over assets constantly and generating more profit. Therefore the 1-2% cost of the factoring is hardly what the Canadian business owner should focus on.

THE COMPETITIVE ADVANTAGE IS BEING SUCCESSFUL VIA FACTORING SOLUTIONS

Does factoring make sense for your business? You can also extend credit terms to major customers or new potential customers, which becomes a major competitive advantage - like your firm your customer also views 'cash as king' and will probably reward you with new business. Offering larger amounts of credit to good customers, with great payment terms is a great way to increase your competitive presence via the factor companies solution.

invoice factoring in canada

CONCLUSION

Want to take your business further with the experts in small business lending in Canada. It's important to know what to look for in a factoring company in Canada!

At 7 Park Avenue Financial we offer the best factoring company solution to clients - Confidential Receivable Financing - it allows your firm to bill and collect your own receivables on a full or selective basis - Talk to our team for more info.

Factoring might not be the solution for every firm in Canada, most certainly it is not - BUT - if you can't get the financing you need it's a solid working capital Canadian alternative. For Canada factoring solutions speak to 7 Park Avenue Financial, a trusted business financing advisor to get the facility that suits your business and needs. Learn the main reasons why factoring is a good choice for your companies growth finance needs.

FAQ: FREQUENTLY ASKED QUESTIONS

What is Factoring -

The process of factoring invoices allows a company to sell its invoices to an invoice factoring finance company and access cash immediately for the investment they hold in outstanding A/R. The transaction removes invoices from the balance sheet and adds cash to the bank account. Businesses can factor finance all their receivables or selective invoices.

What factoring companies do?

A factoring company specializes in invoice factoring, or purchasing outstanding invoices from businesses that have slow paying customers and are looking to boost cash flow. This allows a business to access cash immediately after issuing an invoice, instead of waiting 30-90 days for the customer to pay

Is a factoring company worth it?

Invoice factoring and financing works for business owners that require cash and who can demonstrate they have reliable customers that have a history of paying invoices on time - A company should be able to demonstrate good gross margins to afford the 1-2% factoring fees that come with selling invoices to a third party.

ADDITIONAL RESOURCES:

Here's a great article from Inc. Magazine on the business of factoring - Click here for the article

7 Park Avenue Financial :
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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/2021

Factoring Financing In Canada | 7 Park Avenue Financial

Sunday, May 2, 2021

How To Use Factoring Financing In Canada For Cash Flow Needs

Your Working Capital Needs Just Got Solved By Factoring Finance

FACTORING AS A SOURCE OF FINANCE IN CANADA

Factoring Financing in Canada for Canadian small and medium-sized businesses is somewhat limited due to the financial alternatives available to Canadian business owners and financial managers.

Also, the overall structure of our banking system, although conservative and strong, by its own nature limits working capital and debt options, especially for assets like commercial accounts receivable. Small and medium-sized businesses in Canada need a form of financing to achieve growth objectives when addressing the future of business funding.

WHAT IS ACCOUNTS RECEIVABLE FACTORING FINANCING?

If your company is trying to grow significantly, or in some cases, survive, your company needs access to business capital. Using invoices as collateral is a way to achieve that via factoring financing companies.

WORKING CAPITAL FINANCING SOLUTIONS

When we meet with Canadian firms to discuss their working capital arrangements and needs, the meeting generally starts with discussing the working capital need. Receivable financing is where the majority of that financing comes from. We can, of course, discuss the matter ‘technically‘ also. Finance analysts and bankers looking at your financial statements can quickly calculate what is known as the ‘Quick Ratio' :

That is simply taking our cash on hand and receivables, adding them up, and dividing by your current liabilities. As accounting-like and technical as this may seem, we strongly recommend to business owners that they monitor this figure quarterly, monthly, and annually – it’s a great investment in understanding your cash needs as well as your days sales outstanding performance.

"WHEN THE BANKS SAYS NO"

When business owners are faced with cash flow and working capital challenges, owners must address what solution is available to increase cash flow; and invoice factoring via a commercial factoring company is one solution.

Factoring financing institutions are usually non-bank commercial finance companies in Canada, who unlike the bank finance your company while the focus is not dependent on your balance sheet.

If your company does not have traditional Canadian chartered bank financing, the concept of ‘factoring' has the ability to remedy your working capital challenges. A/R Financing does not focus on the credit history of owners, unlike how an owner's credit score is a key focus in Canadian business banking. That's one of the key advantages of factoring financing in Canada.

Receivables finance vs factoring comes down to the issue of either assigning your receivables to a bank of selling them on a selective basis to suit your cash needs. Businesses have to have decent gross profit margins to absorb the factoring finance cost and receive immediate financing upon approval of the facility.

Factoring in Canada provides you immediate cash for your receivables that you otherwise would be waiting for 30, 60, and yes, unfortunately, sometimes 90 days for your funds from customers. If we go back to our ‘Quick ratio' example, we can see that your cash and receivables on hand might clearly not be able to cover your current liabilities, most notably accounts payable, Government source deductions, etc.

FACTORING COMMERCIAL ACCOUNTS RECEIVABLES IS CASH FLOW MONETIZATION AND NOT DEBT ON THE BALANCE SHEET

We can't overemphasize that factoring as a solution is not ‘borrowing‘ or term debt as the bankers like to call it. It is simply a method of liquidating your current assets earlier than you anticipated, giving you the cash flow to pay supplies, employees, etc. That is the solution delivered by factoring companies.

The basics of ‘factoring’ in Canada vary widely. That is partly because, in our opinion, factoring in Canada is viewed much differently than where it originated in the U.S. and England. We, therefore, encourage customers to understand what the Canadian factoring environment is all about so they do not lock themselves into a financing strategy that is contractual in nature, has too high a cost, and is not productive from a daily paperwork point of view.

Many businesses in Canada have major misconceptions about factoring as alternative financing. When we meet with customers, we continually find we are clearing up those misconceptions by discussing the following points:

The Canadian Factoring landscape is very different than in the U.S.

Canadian businesses in Canada generally have the perception that factoring is both intrusive to their customers and that the overall credit quality of their customers limits the amount of funding that your firm can receive under a factoring facility. When we talk to customers, we can show them ways to offset most - sometimes all! - of the costs of factoring.

WHAT DOES FACTORING COST

Many customers view the actual factoring cost as an ‘interest rate. ‘ This is a poor way of looking at the cost – a better way is to view your ability to get unlimited cash flow financing at the expense of a 1-2% reduction in your gross margins. Prompt collection of your accounts receivable will reduce your financing costs.

EXAMPLE OF HOW FACTORING WORKS ON A DAY TO DAY BASIS

Many Canadian firms also don’t understand the day-to-day basics of factoring – we can, for explanation purposes here, simply say that it is the selling or 'discounting‘ of your receivables in two steps.

You receive 80-90% of the cash for the invoice the day you generate the invoice, and it is a true earned or ‘owing' invoice. You receive the balance when the customer pays you, less the 1-2% discount fee that we talked about earlier.

FACTORING VERSUS PURCHASE ORDER FINANCING: CAN PO FACTORING FINANCING AND RECEIVABLE FINANCE BE USED TOGETHER

Clients at 7 Park Avenue Financial sometimes confuse factoring in Canada with Purchase Order Financing. They are not the same. The factor/a/r financing solutions is a method to cash flow your invoices from creditworthy clients - Attached to that is a fee in the 1.5-2% range, so a client should have typically good gross margins to absorb the financing charge. For more information on how P O FINANCING works, click here.

CONCLUSION

Are factoring services Canadian business the panacea and ultimate solution for every Canadian firm? Definitely not. Can it help thousands of small and medium enterprises in Canada fix their funding challenges? Absolutely yes!

Work with 7 Park Avenue Financial, a trusted and experienced advisor in this area to ensure you have the best facility, the right asset based finance factoring company at the best rate that suits your business model and way of doing business over the long term via a factoring financing solution. Let our team be the growth strategy funding experts you have been looking for.

FAQ: FREQUENTLY ASKED QUESTIONS

What is factoring?

Factoring is a business finance transaction and is a method of selling accounts receivable/outstanding unpaid invoices at a discount. The factoring of accounts receivable allows a company to meet its short-term debt obligations by using this customized flexible approach method of ' debtor finance' as a type of line of credit.

How does factoring finance a company?

Factoring debt financing works for business when a financing company, known as the ' factor ' provides business capital to a company by purchasing and paying for outstanding invoices for creditworthy clients of a business. Typical advances on the receivables are in the 85-90% range and funds are advance promptly, usually same day or the next day. Companies receive the balance of the invoice advance when the debtor pays, less a factoring fee.