The Dreaded ‘ F ‘ Words - It’s Factoring, Funding and Financing Your Sales Hit A Cash Flow Home Run With Receivable Factoring Finance Factors In Canada
RECEIVABLE FACTORING FINANCE FACTORS
Receivable Financing Finance factors in Canada. When the Canadian business owner / financial manager considers the weight of evidence for a factoring receivables he or she wants to be in a position to have the facts on how this method of financing sales works, costs, and attracts benefits otherwise not obtained. Let's dig in!
IT'S CRITICAL TO GET A STRONG SENSE OF YOUR TRUE CASH FLOW POSITION
Whether your business is mature, a start-up, or growing like crazy you need to be in a position to ' model ' your cash flow. That's something you need for your own management of your business, as well as being available for any term or operating lenders. The advantage of having such data is that over time you get a strong sense of your cash flow and working capital needs, giving you comfort on what’s coming in. and going out!
PROFITS DON'T EQUAL CASH FLOW
Feeling disconnected lately? One reason for that is what we see in talking to clients all the time - actual cash flow and profits are vastly different things. Are you really comfortable with the way your A/R tracks sales, or vice versa, and do you understand the implications of growth and working capital needs? Most firms are keenly aware it is more and more difficult to get paid on 30 day terms which historically were a norm.
That’s where Finance factors/factoring company solutions come in. An accounts receivable factoring solution reduces the time gap that it takes you to generate cash out of your products and services.
BANK FINANCING VERSUS FACTOR FINANCE - THE ONLY DIFFERENCE IS THE PAPERWORK!
Unlike bank financing where you assign or collateralize your accounts receivable via a line of credit, the Factoring solutions is a straightforward immediate ' sale ' of your revenues as you generate sales. It gives you ' immediate funding ' and by that we mean basically the same day. So if you hopefully generating invoices for clients in the morning you receive the cash for that sale the same day. That’s cash flow optimization! Factoring differs significantly from a ' bank loan '.
FACTORING A/R IS A LONG-STANDING SOLUTION THAT CAN BE ACCESSED QUICKLY
Although the function and the formula for accounts receivable financing seem either strange or exotic or unheard of to some in reality this form of financing has been around for hundreds of years. It is widely popular in the U.S. and gains more traction in Canada every day. Quite frankly it’s the alternative to having to put more equity in your company or arrange debt financing that you may or may not be eligible for. (And business owners can, unfortunately, spend a lot of time these days on financing solutions that are either wrong for them or unattainable)
Where confusion reigns supreme sometimes is when some of the terms, pricing and players in the Canadian accounts receivable financing industry seem a bit confusing to the factoring ' newbie '.
5 KEY POINTS IN UNDERSTANDING RECEIVABLE FINANCE
A short overview of some key issues, points to consider is as follows:
1.A/R factoring documentation is between your firm and the finance factors - the factoring agreement will spell out clearly the factoring fee and final advance rate ( managing your a/r well and focusing on dso reduction will lower costs associated with carrying slow paying customers - funds are typically advanced within 24 hours of your invoice being generated.
2.Our absolute recommended solution is a confidential invoice financing facility whereby you bill, collect and finance your sales to the amount you require and need.
3.Generally, receivables under 90 days can be financed at any time. Your receivable might be 1 day old or 60 days old. It's your call on when you want to cash flow them relative to the invoice amount/amounts and what your cash needs are. The faster an invoice is paid will lead directly to lower financing costs.
4.The terms advance rate and discount fee are absolutely critical in understanding A/R receivable factoring in Canada. Typically 10% of the financing is held back as a buffer or hold back, and the charge to discount or finance that sale is in the 2% range for a 30 day period. So using a $100,000.00 invoice as an example you would receive 98,000.00 of immediate cash for that item. Proceeds from factoring companies could be used to generate more sales and service and profits from your goods and services - and in fact, your payables could be offset by taking discounts for prompt payment with your own suppliers.
5. Your company has the option to choose non-recourse factoring or traditional recourse factoring,w whereby in the latter your firm continues to carry the credit risk. Companies may also opt to consider receivable insurance which is available from a handful of specialized finance firms, allowing your firm to lower bad debt risk.
CONCLUSION
If you wish to smooth out and normalize small business cash flow, be less afraid of growing or taking on larger orders and contracts, and avoid ' cash crunches ' the weight of evidence might just suggest you should consider receivable factoring. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your cash flow needs.
7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
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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.
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
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