What Cash Flow Strategy Fits Your Company Needs?
Information on AR factoring as a short term finance strategy for cash flow in Canada.
No shocking news to the business owner or financial manager... but it's a jungle out there when it comes to Canadian business financing!
A lot of options and a lot of confusion... right? So where exactly does cash flow factoring ... i.e. short term AR Financing fit into the picture. Let's try and clarify.
Fundamentally it’s not that complicated... but there is a a lot of misinformation out there about pricing and daily mechanics... so lets clarify.
Essentially you are borrowing against receivables. Easy to understand so far, right? There are different reason why clients we talk to consider this option. For some its really basic... they want to eliminate themselves from the whole process of credit and collections.
For others it's simply a case of being unable to access traditional financing, or even better traditional financing in the amount they need. That applies very specifically to companies in high growth mode, or perhaps they are even a start up.
By selling your receivables to a third party, typically a commercial finance firm, you receive immediate cash and your facility is repaid as those receivables are collected.
In a perfect world you want to keep / retain the rights to the servicing and collections of that AR... your firm wants to be in a position to collect and service and liaise with your valued clients. There is a way to do that in Canadian receivable finance.
The whole process of a short term factoring strategy is pretty fundamental - you simply sell something for less than it's worth. In this case it's the receivable Using a $100,000.00 receivable as an example you invoice the client as soon as your firm has performed its product shipment or service - and you receive , that same day approximately $90,000.00 . You receive the other 10k, less financing costs, when your client pays... and typically that discount is approx 2 per cent if you are billing on a 30 day period.
The Canadian business owner and financial manager quickly realizes that if your customer is paying relatively promptly you have just created your own large cash flow machine.
So the biggest advantage to factoring in Canada is simply ' immediate access to cash ‘. You do have that financing charge , but surely you haven’t forgotten Business Finance 101 that says that you are in fact incurring costs to carry that receivable already .. And if you had the cash the same day you invoiced you would be in a position to buy more and sell more, generating even further profits instead of wafting 1-3 months to collect that AR!
Shorter term financing via an AR Cash flow strategy can also include that ' confidential ' component we discussed - allowing you to bill and collect your own receivables without notice to any client, supply, other lender, etc. Typically you can't have both a bank and factor strategy in place, but the reality is that many clients simply can't access bank finance, so they gravitate to cash flow factoring.
Speak to a trusted, credible and experienced Canadian business financing advisor on clearing up the ' jungle ' of Canadian business financing when it comes to a cash flow strategy.
Stan Prokop - founder of 7 Park Avenue Financial –
http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
Info re: Canadian business financing & contact details :
http://www.7parkavenuefinancial.com/short_term_finance_factoiring_ar_cash_flow.html
