Understanding Cash Flow For Business and Why Receivable Factoring Just Might Be The Solution

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YOU WANT RECEIVABLE FACTORING  CASH FLOW  FOR BUSINESS!

Understanding the Financing Needs of Canadian Businesses

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        Financing & Cash flow are the biggest issues facing business today

   ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?

CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs

Or Email us with any questions on Canadian Business Financing needs:

sprokop@parkavenuefinancial.com

 

Receivable Financing: A Viable  Trade Finance Cash Flow Solution for Canadian Businesses  

 

 

Choices.  Alternatives.  Robert Johnson, an old blues legend, wrote of being at the 'crossroads' and had choices.

 

Canadian businesses, small and medium-sized enterprises (SMEs), constantly seek reliable options within the Canadian business financing marketplace. Whether small players or large corporations, the need for cash flow & working capital solutions for business growth remains constant.

 

 Alternative Financing through Accounts  Receivable Factoring

 

For those facing challenges obtaining sufficient working capital financing from traditional banks, receivable factoring emerges as a viable solution. Unlike banks, which often consider the overall financial picture, receivable factoring focuses solely on the asset.

 

If your company can secure complete financing from a Canadian chartered bank, you likely have the ultimate cash flow protection. Yet, very few businesses fit into this category after the global business financial downturn of 2008-2009 and the COVID epidemic.

 

Receivable factoring might be more costly in certain instances, but it enables you to operate your business differently.

 

Understanding  Receivable Financing – A Useful Tool for Business Growth

 

Receivable financing, also known as factoring, has long existed as a financing tool. However, it has remained somewhat under the radar in Canadian business financing, often viewed as an alternative method of business financing option.

 

How Does Receivable Factoring Work?

 

In essence, receivable factoring is the sale of your receivables to a third party, either as a one-time transaction or on an ongoing basis. You receive funds almost immediately, focusing solely on the value of your receivable. It doesn't create additional debt for your balance sheet and provides control over your receivables, monetizing them to the extent you desire.

 

Control and Usage of Funds in Business Operations

 

The key advantage is control. You decide how much to borrow, when, and how to utilize the funds. Generally, our clients invest these funds to foster more growth and profits in their businesses.

7 Park Avenue Financial recommends Confidential Receivable Financing, allowing businesses to bill and collect their own receivables while at the same time achieving all the cash flow benefits of a non-bank receivable finance solution.

 

Perceptions and Reality of Receivable Financing Costs

 

While the perception is that receivable factoring as a cash flow solution is expensive, the reality may differ. Typical costs of a factoring fee range from .8 - 1.25%  per month, but the benefits include unlimited sales and profit growth, the ability to take supplier discounts, enhance supplier relationships, purchase smarter, and increase A/R and inventory turns.

 

Conclusion - Is Receivable Financing Right for Your Business?

 

Only you can determine if receivable financing and factoring is the working capital solution your business needs. The availability of choices and alternatives you may not have previously considered makes this a viable option.

 

Call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor who can assist you in choosing the best financing path when you find yourself at a crossroads.

 

  

FAQ: FREQUENTLY ASKED QUESTIONS /  PEOPLE ALSO ASK / MORE INFORMATION  

 

What Is Receivable Factoring, and How Does It Work?

Receivable factoring is a financial transaction where a business sells its receivables (invoices) to a third party (called a factor) at a discount. This provides immediate cash flow for the business without waiting for clients to pay their invoices to payment terms. The factor takes on the responsibility of collecting the payment, allowing the company to focus on growth and operations.

 

Why Would a Business Choose Receivable Factoring Over Traditional Bank Financing?

 

Traditional bank financing via traditional financing institutions often considers the overall financial health of a business and may have strict requirements. Receivable factoring focuses solely on the quality of the receivables and doesn't add debt to the balance sheet. This makes it more accessible for businesses not qualifying for traditional bank loans, with many factoring companies providing a quicker and more flexible cash flow solution.

 

 Is Receivable Factoring Expensive, and How Are the Costs Calculated?

The cost of receivable factoring typically ranges between 8% / annum to 1.25% per month for factoring fees, depending on the agreement with the factoring company. While invoice factoring for commercial or government clients might seem more expensive than a line of credit via traditional loans or a merchant cash advance,  the benefits like unlimited sales growth, the ability to take supplier discounts, and increased inventory turns often outweigh the costs of a factoring agreement.

 

What Are the Benefits of Receivable Factoring for Canadian Businesses, Particularly Small and Medium-Sized Enterprises (SMEs)?

 

 Receivable factoring offers numerous benefits for Canadian SMEs, including immediate access to cash as the factoring company pays the firm immediately - often same day, enhanced control over finances and cash flow issues,  and the ability to grow without the constraints of slow-paying clients. It also allows businesses to operate without taking on additional debt, making it a strategic tool for the financial management of operating expenses as well as business expansion.

 

How Can a Business in Canada Get Started with Receivable Factoring, and What Should They Consider?

 

A business interested in receivable factoring can start by contacting a reputable Canadian factoring company or financial advisor experienced in this area.

Considerations include understanding the terms of the agreement, the receivable factoring cost involved, and ensuring that the chosen accounts receivable factoring company partner aligns with the business's unique needs and goals. Speaking with a credible Canadian business financing advisor can help navigate these considerations and ensure a successful implementation of an invoice financing strategy.

 

How Does Factoring Affect Cash Flow?

 Factoring positively affects cash flow by providing immediate access to funds that would otherwise be tied up in accounts receivable. By selling invoices to factoring companies, a business can quickly convert outstanding invoices into cash, thus improving liquidity and enabling more flexibility in managing expenses, investments, and growth opportunities.

 Is Factoring an Operating Cash Flow?

Yes,  debt factoring/accounts receivable financing, is considered an operating cash flow for short term financing. It's part of a business's daily operations, converting sales made on credit terms into immediate cash. Factoring accounts receivable enhances the operating cash flow, reflecting the cash generated from the core business activities.

 

 How Do You Account for Factoring Receivables? Factoring Receivables Accounting

 Accounting for factoring receivables depends on whether it's a sale of receivables (without recourse) or a loan (with recourse).

• Without Recourse: In non recourse factoring, the receivables are removed from the balance sheet, eliminating payment risk and the cash received, along with any fees, is recorded. Any loss or gain from the transaction is recognized in the income statement as the factoring company takes responsibility for credit risk.

 

• With Recourse: In recourse factoring, receivables may remain on the balance sheet, and the cash received is recorded as a liability. The fees and interest are recorded as expenses. The exact accounting treatment can vary, so consultation with an accountant or financial professional familiar with the applicable accounting standards is recommended. The factoring company assumes no risk for bad debt when the company is selling unpaid invoices.

 

What Happens to the Cash Flow If the Account Receivables Increase?

 

  

If accounts receivable increase without a corresponding increase in cash collections, it may indicate that more funds are tied up in unpaid customer invoices until the customer pays the invoice - as measured by the days sales outstanding formula.

This could lead to a decrease in available cash flow. Factoring accounts receivables / unpaid invoices can counteract this effect by converting those increased receivables into immediate cash, thereby maintaining or even enhancing the cash flow.

 

Without account receivable factoring or other financing strategies, a significant increase in accounts receivable might strain the company's liquidity and hamper its ability to meet short-term obligations and invest in growth opportunities.  

 

Citations - Mian, S., & Smith, C. (1992). Accounts Receivable Management Policy: Theory and Evidence. Journal of Finance, 47, 169-200. https://doi.org/10.1111/J.1540-6261.1992.TB03982.X.

Sopranzetti, B. (1998). The economics of factoring accounts receivable. Journal of Economics and Business, 50, 339-359. https://doi.org/10.1016/S0148-6195(98)00008-3.

 

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

Finance Factors In Canada / Decided If You’re For Or Against Receivable Factoring Cash Flow Solutions?

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 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

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

How To Access Business Factoring For Cash Flow Success Via Receivable Financing

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Receivable financing solutions in Canada, often called  ' business factoring ',  offer a true ' second chance ' when it comes to the business owner/financial mgr’s ability to turn adversity into opportunity. This business finance solution goes by a few names: invoice factoring, invoice discounting, receivable factoring, etc.  There are different forms of factoring, so we forgive new clients at 7 Park Avenue Financial for sometimes getting overwhelmed with the terms!


The ability of your company to turn cash flow for business challenges into a major win in working capital and cash flow might just come from one of Canada's newer forms of business financing, called ' business factoring '. Spoiler alert -  Accounts Receivable factoring it's not that new!

Getting the order, and then getting paid. The old  ' cliché' of  ' the order is not complete until it's paid for '... as trite as that sounds, seems to hold true even today, especially for new, small and medium size firms.

Many clients we meet with are in the enviable position of getting larger orders and contracts than they might have imagined based on their innovative products and services. But with that success, as we noted, comes the challenges of cash flow financing.

During the past few years with all the economic turmoil it seems Canadian business financing options seem either limited or have disappeared - that's certainly how many clients feel. The impact of accounts receivable growth is a huge challenge, not to mention inventory and Purchase Order / Contract funding needs.

 Many companies find that traditional bank financing is restrictive to a point that Canadian banks can't meet their business credit needs. The concept of ' seeling a/r ' to a third party and generating immediate cash as you grow sales has become popular with thousands of companies in Canada.   This differs from assigning accounts receivable to a bank.

Note that almost all of the commercial factoring in Canada is done by non bank commercial lenders. Canadian banks will often refer customers seeing a/r financing to a specialty lender or an experienced advisor familiar with factoring.

Advantages of Factoring Vs. Other Types Of Financing 

There are of course some significant differences between a/r finance and the concept of a ' commercial loan '.  Primary is the fact that this type of business credit is not a ' loan' per se - your company does not take on debt on your balance sheet.  The amount of factoring financing is simply directly related to the amount of your A/R. Canadian borrowers will be happy to know that there is virtually no upper limit to the amount of factoring finance if your firm is growing and has good receivables, domestically or internationally. 

Borrowers know only too well that bank financing is tied to credit limits, annual reviews, and a variety of covenants, personal guarantee focus, and the potential requirement of outside collateral. Many Canadian firms feel the pressure to increase outside equity, and a good receivable financing facility will allow you to potentially avoid that need.

What Type Of Company Utilizes  Accounts Receivable Financing?

Almost every industry in Canada uses Factor financing.  Industries in the oil and gas sector, staff placement, manufacturing, distribution, wholesaling, trucking, technology and business services all are major clients of the receivable financing industry.

Although some businesses that are financially challenged in some manner, the proverbial ' bad credit ' industry statistics show that the factoring industry is experienced strong growth and popularity.


Business cash flow, a la ' cash is king ' has never been more relevant for the economy. Receivable financing allows firms to not be victimized by clients pay 30, 60 or dare we say it 90 days beyond stated payment terms. It's the SME sector that feels that pain the most, as larger corporations have access to more liquidity.

Business factoring can be called a subset of asset based financing - the monetizing of assets without taking on commercial business loans and term debt. The speed at which factoring facilities can be arranged is also an appeal to Canadian business owners and their financial managers. The concept of no installment payments has broad appeal to factoring clients.

Key Points in Determining the Financing Value Of Your Accounts Receivable 

Numerous factors are taken into account when commercial lenders are setting up your accounts receivable financing facility. It's all about the true value and quality of your a/r. When it comes to your accounts receivable ageing it's no secret newer invoices have greater value - numerous industry statistics validate that point.  Who your client is also is important. An extreme example has been given that a receivable owing to your firm from Google has more value than one owing from a local DVD rental store!

As a commercial borrower in a factoring facility the more info you have on your a/r base will result in a more cost effective facility.

What Do Factoring Companies In Canada Require To Set Up Your Invoice Purchasing Facility     

As a general rule borrowers will be pleased to know that the entire application process in setting up your facility is very simple and straight forward. Key information required includes :

1.     Standard credit application 
2.     Agings for a/r and a/p
3.     Confirmation of legal company name - ie articles of incorporation
4.     Sample invoice 

New clients of 7 Park Avenue Financial always want to understand how the advances and cost work when it comes to receivable funding. As a general rule your sales invoices are funding at 90% of their face value.  Your firm receives the balance of the invoice, ie the remaining 10%, less financing costs when your client pays the invoice. Invoice purchasing is now completed!

It should be noted that there is no requirement to finance all your a/r base, although many of our clients choose that route, allowing the facility to mirror a true bank line of credit.

So we have waxed eloquent on the problem- That's easy. You'd prefer a solution though!   Receivable financing, also known as factoring addresses the issues of your customers paying you in 30.60, or dare we say it, 90 days. You can carry those receivables and continue to make a high investment in current assets, or you can turn your sales into immediate cash.

Let's cover off some other basics around how this innovative method of business financing works.  When you sold the product or service you hopefully had enough gross margins in your cost of sales to make the sale profitable. If you are able to sustain another 1- 2% of gross margin erosion you can use receivable financing to turn sales into same day cash, which is what this financing is about. That is known as the factoring discount, which is a cost, and not an interest rate as some people believe.

So how does this all work? We're glad you asked! Let's reveal and recap in a manner that's understandable.  Your purchase orders or contracts must be ' clean ' from a viewpoint of being able to demonstrate you can recognize revenue on your shipment.  We should interject at this point that the banks will finance your receivables also, but that comes with much stricter criteria and limits on the amount you can finance.

That is why factoring has risen in popularity, it provides unlimited... yes... unlimited same day cash flow for your sales. Your challenge is to work with a trusted, experienced and credible business financing advisor who can steer you to the right partner with the type of facility that works for you.


Although traditional factoring along the lines of the U.S. model requires your customer to be notified we are in fact a fan of the type of facility that allows you to bill and collect your own receivables, for all the obvious reasons.  At 7 Park Avenue Financial we've called that Confidential Receivable Financing.

It's important for clients to understand at its most basic how factoring works. You are advanced, on the same day as you invoice approx 90% of funds for your invoice. The remaining 10% is a holdback which creates a reserve and also covers the financing charges. When your customer pays you or the factor you receive the remaining 10% of your invoice amount, less the financing charge.

In Canada the cost of factoring from accounts receivable factors ranges from 1-2% a month.  The cost of factoring revolves around some key points. They include:

Industry specific issues relating to your company  - some industries are occasionally ' out of favour"

Size of your Receivable base - a very general rule is that many facilities start in the 250k range, there is no upper limit, but any size of facility small or large can ultimately be financed with the expertise of a business financing consultant 

General level of creditworthiness of your client base as it relates to any major concentrations or invoice size, geographical location, etc

DSO! Business people need to be familiar with the concept of DSO -  ' days sales outstanding ' It is a key measure of any successful company. The largest and most successful corporations in the world have this a key measure of financial and profit performance. DSO is measured in days, lower is better and the turnover of your a/r can dramatically affect the cost of factoring.



Note that it is also possible to transfer all of the risk of bad debt to your funder, which is known as non-recourse factoring - these facilities naturally cost a bit more and are sometimes abetted by credit insurance. Factoring companies in Canada and advisors can provide your firm with more info on this additional investment in credit risk.



It turns adversity into opportunity because you grow sales with larger gross and net margins, and if you utilize the financing properly you are actually in a position to reduce much, in some cases all of your financing costs by taking discounts with your own suppliers or buying smarter and in larger quantities. Reversing the cash flow for a business problem - That’s a win win in the language of business.


In summary, it is important to realize how factoring works and why it can be valuable to your business, in good times and in less than good times! Your firm accelerates cash flow and literally unties the capital you have invested in sales to clients.


If you are looking to factor receivables seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your business factoring and A/R financing needs.





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.









Stan Prokop
7 Park Avenue Financial/Copyright/2020



















 

Receivable Factoring : Three Things You Didn’t Know About A/R Factoring Services

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Secret's Of A/R Alternative Finance

Information on receivable factoring in Canada. Knowing how this business financing works , what it costs, and it's key benefits are critical to understanding this valuable alternative financing tool

Canadian business owners are demanding more information on receivable factoring and how factoring services can help their working capital and cash flow needs. When we talk to clients we talk about several myths and misconceptions about factoring in Canada .Let explore some of those myths, misconceptions and mis understandings.

Factoring is pledging your receivables - (Wrong!)

Factoring is expensive (We will let you decide!)

Canadian factoring services are the same as in the U.S.( Not necessarily)



1.Factoring is pledging your receivables - This is a popular misconception around receivable financing. Some of the misconceptions revolve around the fact that various terminologies are used to describe factoring – these include invoice discounting, receivable financing, etc. The reality is that factoring is the sale of your receivables for immediate cash. In effect your company sells its receivables and your firm gets immediate, almost same day, (often same day) working capital and cash flow for your business.

The factor firm benefits as they make an immediate profit on the purchase of that receivable. We should point out that customers in Canada can sell one receivable or all their receivable; they have that option and often don’t necessarily know that. The transaction becomes extremely favorable to the factor firm based on the amount of holdback you negotiate on your transaction. Many factor firms hold back up to 20% of the receivable and don’t give those funds back to you until your customer pays.


2.Factoring is Expensive: This is clearly at the top of the list of every discussion we have with customers around factoring. The reality is that customers view the cost of factoring as an interest rate, while the industry itself views it as a discount on the sale of the receivable. Discount rates in Canada vary from 9% per annum to 2-3% per month. So yes, if you as a business owner view the factors ‘ charge ‘ as a finance interest rate you will perceive it as expensive . What Canadian business owners don’t do is to reflect how much it actually costs them to carry receivables for 30, and sometime 90 days.

And, get ready for this – they also many times don’t realize they can use the immediate same day cash they get for their receivables to take prompt payment discounts with their suppliers, and, furthermore to negotiate better pricing and larger purchases with valued suppliers . We have know some customers do totally 100% eliminate the entire cost of factoring by buying smarter and better and paying suppliers on a 2% 10 day scenario. That is true cash flow power!



3. Factoring came to Canada from the U.S. and Europe. It was very slow to catch on and is catching on very quickly these days, aided of course by the overall global credit crunch of 2008 and 2009 – We are still in that crunch of course and business financing is still difficult to achieve for small and medium sized business in Canada. Factor firms in Canada vary in size, and many are simply branches of foreign operations.

We believe a Canadian factor firm who understands the needs of Canadian business is best suited to your needs. Each factor firm has a different way of doing business, has a daily paper flow that differs often substantially, and prices their rates and holdbacks (remember the holdback!) in a different manner.


Speak to a trusted, credible and experienced financing advisor who will ensure you working capital and cash flow needs will be met by such a facility. Use the facility wisely to grow profits and cash flow.



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