Factoring and Accounts Receivable Financing – A Real Working Capital solution for Cash Flow challenges

Factoring is predominantly becoming the main solution when a firm considers a new or alternative accounts receivable financing strategy. As customer payments slow down ( many firms seem to be waiting 60 to sometimes 120 days for the customer payments ) the challenge of running your business from a cash flow perspective increases . The irony is of course that many customers still post 30 day terms on their invoices and purchase order acknowledgements from their client base.

We should not fail to mention of course that there is one very obvious ‘non – financial ‘solution for your company, and it does not even involve additional financing effort. It is simply to enforce collections more strongly and reduce what is known as your ‘day’s sales outstanding ‘to a more manageable level. Any major dent you can put in your ‘D S O ‘will improve working capital and cash flow. There is of course the other non financial alternative, which is the other side of the equation, and that’s to slow payables, which also improves cash flow – but you don’t want to do that at the expense of your suppliers which you value.
So we have discussed why you want to factor receivables and to some extent what your non – financial solutions are.

But let’s just make sure we understand what we are talking about. When you are working under a bank facility your receivables are collateralized or pledged as a security for an overdraft. That’s the best simple way we have of explaining to clients what factoring is not. What is is , though, is the sale of your invoices , on a daily, weekly, or monthly basis ( the flexibility is your choice ) , thereby increasing your advance rates on those receivables to the 80-90% range depending on the type of facility you have structured .

More cash flow and more immediate cash flow is the most obvious solution to factoring and accounts receivable financing. There are two sides of the coin though, and on the other side of this type of financing strategy is the fact that you might find yourself reporting on your receivables more often that you would have with a bank type revolver line of credit. You also might be less reluctant to negotiate longer payment terms for your customers, as in fact it will as your firm that directly carries this financial cost.

We spoke of the price you have to pay in factoring receivables. When we site down with clients we advise them there is a real price, i.e. the financing or invoice discounting cost, but, more apparently, the major change in the way day to day business changes from a paper flow and customer interaction basis. If you negotiate the wrong type of facility you might find yourself in the same situation that many of our clients have found when they come to us with financing woes, which is simply that they feel that in spite of the significant cash improvement they in fact feel that their factor firm partner is running their business.
Factoring facilities in Canada are available with firms who have very high professional standards, are well funded to meet all your financing needs, and in fact tailor their financing service to your business, once they understand the uniqueness of your challenges.

Many business owners who know little about factoring seem to know one thing, that it can be viewed as intrusive by their customers. You can eliminate that ‘intrusiveness ‘by ensuring you have the right type of facility, one that is priced right, has straightforward terms, and works on a day to day basis for you and your customers. The best factor funding facility in fact, we feel, is the one that allows you to bill and collect your own receivables, while at the same time reaping all the benefits of accounts receivable discount, as factoring funding is also known.

So what’s our bottom line in our cash flow information interchange – it simply:

- Determine if you can achieve self financing status via the more prompt collection of receivables

- If financing is in fact needed consider factoring financing as a working capital strategy

And , most important, work with a credible , trusted and experience advisor who will model a working capital and cash flow solution that reaps benefits and cash on terms you can live with on a day to day basis .

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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 6 years - has completed in excess of 45 Million $$ of financing for Canadian corporations .
For info on Canadian business financing & contact details :
http://www.7parkavenuefinancial.com/factoring_accounts_receivable_financing.html

How Factoring and Accounts Receivable Funding Can Fix your Working Captital problems

When your payments from key customers are significantly slowing down many firms in Canada turn to accounts receivable financing, otherwise known as ‘factoring’ for a solution to their working capital challenges. As unbelievable as it seems in many cases it is not unusual to have clients tell us that receivables are getting paid in 90 days these days, sometimes longer in fact. Gone seem the days when the 30 day term on your invoice seems acknowledged and honored.

When those payments do slow down that tends to cripple your cash flow. Naturally the solution to the problem, or the obvious one to most business owners is to make an all our effort to improve collections but focusing on increased accounts receivable turnover.

As an aside we think it’s very important that Canadian business owners and financial mangers know their accounts receivable collection period – you don’t have to be an analyst to do that - the simple formula is as follows –

A/R Times 365 Divided by Sales

To illustrate, if your firms year end balance sheet has receivables of 400k and your annual sales are three million dollars your collection period is 48 days. (We wish our collection period was 48 days we can hear you saying!)
Naturally you can alter the above formula on a quarterly or monthly basis by adjusting the A/R and sales level for your required period.

You can address the additional cost in carrying receivables by attempting to raise your prices with your customer to cover those increased A/R cost. However, that gets you profit, and not liquidity. That is where factoring and receivable financing comes in.
Factoring is quickly becoming the first alternative solution for firms who wish to get 85-90% of their cash immediately after they invoice. This solution is available through a pure factoring solution, or, if your firm is a bit larger ( 250k + in receivables) as part of a working capital facility or asset based lending facility.

The challenge, we tell clients, is ensuring you have the type of facility and factoring partner that meets your overall goals in day to day business financing. It certainly also helps when you have a solid business with good clients, but the hard reality is that factoring is available to almost every size and type of business is Canada – what will differentiate your facility is simply the overall pricing, terms, and structure of your facility .

Is your firm a candidate for a factoring or accounts receivable financing facility. It probably is if your customer payments are slowing down, sales are growing, and you are unable to obtain traditional bank lines of credit from Chartered banks. Factoring is hugely popular in the U.S. - Over 140 Billion dollars (yes that’s billion!) was done in 2009. The Canadian landscape is much smaller and fragmented, but bottom line, its growing.

We can’t over emphasize to clients that your factoring facility grows with your business, and your factoring credit facility can be adjusted upward very easily in terms of your growth.

Is there any downside at all to a factoring and working capital facility? When we sit down with clients and work them through the process we focus on 3 main areas –

1. Choosing the right factoring and receivable financing partner

2. Ensuring you understand your true costs ( and how to offset them )

3. Picking the right facility from a day to day ease of doing business perspective

Speak to a trusted, credible and experienced advisor in this area to ensure that you are comfortable that such a business financing is the solution to your cash flow and working capital problems.

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http://www.7parkavenuefinancial.com/factoring_accounts_receivable_funding.html

Independent Film Financing via a Film Tax Credit Finance Strategy

One of the best lines we have ever read on our subject of film financing for Canadian productions is as follows, and we attribute it to on of Hollywood’s more astute observers and reporters on this subject - the line is as follows:

‘Have you ever wondered why the U.S. looks like Canada in the Movies? ’!!

We love that line and the answer to that question mostly revolves around 3 words - Tax Credit Financing.

Whether or not you subscribe to the idea that independent (‘ indie ‘ ) film financing,(and of course we are talking about independent televison project financing also ) is dead our basic point is simply that tax credit filing, and the financing of those tax credits has never been more popular than in the current environment in Canada - 2010 .

Tax credits can finance a very significant portion of your production, in particular whats known as ’ below the line ’ budgets. By employing a specific quota of Canadian actors and resources and filming locations, and utilizing the point system in place, you can recover a large amount of costs, and, if you choose you can finance your tax credit claim prior to receiving a final cheque from the government.

The key tax credit involved is of course the ’ Film Production Services Tax Credit ‘, which covers a large portion of labour cost. As great and in some cases greater per cent age amounts can be recovered on digital animation projects related to your production, or as separate entities themselves.Some of the basic rules are that key personnel such as actors and directors must be from Canada.Several thousand products have been done in Canada - no one can of course say that tax credits were the sole reason for these productions, but we can venture to say they were in many cases a primary decision driver.

As industry professionals and participants are aware of some of the key elements of financing your project - those include proper budgeting and accounting via reputable staff and parties.

Revenue and cash flow, pre and post production comes from foreign pre sales, your own equity, bridge loans, gap financing, and of course tax credit financing.

How are tax credits financing in film, TV, and digital animation. Your project of course must be certified and eligible for the credit being financed - that is only common sense. It also makes sense to have a separate legal entity in place for each project - the lawyers call this a ’ SPE ’ - Which stands for Special Purpose Entity.

It is critical to work with an experienced, credible, and trusted tax credit financing advisor, lets call he, she, or it the ’ Film Financing Company ‘. Film financing sources are a great way to finance your projects. Your credit can be cash flowed, or ’ monetized ’ when it is filed, and, if you have some credibility and good accounting and up to date filings for your project you might be surprise to know you can receive funds, via a loan, prior to the actual filing.

Utilized available and popular tax credits as a solid source of your overall project financing strategy for your independent film, television show or series, or a digital animation project.

http://www.7parkavenuefinancial.com/Independent_Film_Financing_Film_Tax_Credit.html

Inventory Finance – Working Capital from an Inventory Loan

Canadian business owners and financial managers focus on the term ‘inventory loan ‘when they want to address this balance sheet component for additional working capital and cash flow.

While it is possible to get an inventory loan the reality is that more often than not inventory financing is a critical component of additional working capital facilities.

Let’s examine some key aspects of inventory financing and determine how you can access this unique type of financing. For starters, when you are successful in financing inventory you are in essence freeing up the cash that is tied up in that critical part of your balance sheet. When we talk to clients about working capital and cash flow financing in general the term ‘cash conversion cycle’ is one on which we place critical importance. It may sounds like a text book finance definition, but the reality is that it’s simply the formula for determine how one dollar of capital flows through your business. And that dollar of capital usually in fact comes from the initial purchase of inventory. This is in turn converted into accounts receivable, which are (hopefully!) collected and turned into cash.

The amount of time that dollar stays on your inventory line is a key part of the cash conversion cycle.
You should focus on inventory financing when in fact your investment in this balance sheet category is significant, often only rivaled by accounts receivable. We have worked with many firms who in fact have to carry more inventory than A/R. That becomes a financing challenge.

Naturally traditional financing institutions such as chartered banks don’t place a lot of reliance in their lending on their ability to secure and dispose of this type of asset. The reality is that your inventory might be in the form of raw materials, work in process, or finished goods. Depending on the lenders knowledge of inventory the ability to margin or finance that inventory becomes limited.

Inventory financing on its own tends to be a challenge – it is not impossible in some circumstances. The reality is though that inventory financing works best when it is tied to a full working capital or asset based financing facility that covers the inventory itself, your receivables, and in some cases supplemental assets such as equipment or real estate .

As a cautionary note we must add that for your inventory to be financing you should be able to demonstrate that it ‘ turns ‘ , and that there is only a very small per cent age of obscelescence attached to this asset category . You can quickly determine how fast inventory turns by going to your income statement , taking your ‘cost of sales ‘ line , and dividing it by ‘ inventory on hand ‘. So what is a good turnover number? The answer is that it depends on overall industry benchmarks for your type of business. A grocery store might turn over their inventory many many more times more often than a manufacturing company with a complex builds process.

We should also add that inventory becomes more financeable when you are running a perpetual inventory system and you are able to demonstrate you have a solid handle on what is on hand , and provide reporting in that regard .
Speak to a trusted, credible, and experienced financing advisor in this very specialized area of business financing – that will allow you to determine if your inventory is currently properly financed, and, if not, what financing options are available.

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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 6 years - has completed in excess of 45 Million $$ of financing for Canadian corporations .
For info on Canadian business financing & contact details :
http://www.7parkavenuefinancial.com/Inventory_Finance_Working_Capital_InvenTORY_LOAN.html

SR&ED Tax Financing - Cash and Working Capital for your R&D Credit

SR&ED Financing, (also often pronounced ’ SRED Financing’ ... we’ll use the term interchangeably ) is a tremendous way for Canadian firms to monetize their research and development tax credit claims in order to generate additional cash flow and working capital for their business .

It is of course common sense that to finance a claim and get funds now you have to have a claim filed! Canada’s sred program and absolutely one of the most positive, beneficial and proactive non repayable grant programs that exists in Canada, bar none.

Over the years we have met with many clients who, unfortunately, haven’t even heard of the program, at that same time for years they have been allocating considerable funds to research and development in manufacturing, software creation, etc. We say software for a specific example, because in many ways it is one of the most obvious areas for sred, and your ability to generate a sred loan against software development is virtually almost guaranteed. But our point simply is that any R&D you do probably can be assessed for research and experimental development - That’s where the acronym comes for Scientific Research and Experimental Development = S R E D!

Many professionals in the SRED area advise our clients that out of the several billion dollars that the government hands out now for the program that almost twice as much remains unclaimed by Canadian business simply for the fact that firms have not heard of the program . One of the key cornerstones of the program is the term ’ uncertainty ’ - if your firm is working on products, processes etc and is unsure of the final result , and funds are expended against that research then clearly that’s SRED !

Well up to this point we have talked about the program, detailed when it is available, now let’s focus on generating cash for our R&D expense.

You have two options after you have prepared a sred claim and filed it. They are not very complex options:

1. You can wait for your technical audit, financial audit and the government cheque, which will of course arrive many months down the road. If it is your first filing the process will take quite a bit longer.

2. You can finance, or ’ discount’ - we can even call it ’ factor ’ your sred to generate a sred loan for immediate working capital.

SRED Loans can be generated immediately after the filing of your claim. Many of our clients actually start the financing process earlier, and the reality is that funds could be advanced exactly at the time of filing. Many firms are very surprised to hear that in certain circumstances you are actually eligible to receive funds during the year, prior to filing - We have termed this process as ’ accrual sred financing ‘. A few more criteria are attached to this process, but isn’t it a great idea to know that your R&D could be funded along the way as you dispense your own capital for the projects.

’Whats involved in a SR&ED financing’? Clients ask. To keep things simply we simply advise that they should view a sred financing in the same manner they view and business financing or working capital financing application. It’s a clear defined process which is as follows:

- Prepare a SRED claim (more often than not with the help of an external consultant)
- File the Claim
- Complete a business financing application

It’s as simple as that. Typical back up documentation and due diligence that you would associate with any financing of your firm applies.

Oh, and a final question we always get - How much can I get and how do payments work. The good news is typically there are no payments made, you get usually around 70% of the claim value on approval, and the balance could be called a holdback or buffer. When your cheque is processed by the government and the grant is mailed to you the additional 30% is of course released, less the financing charges.

Consider monetizing your SR&ED claim for valuable cash flow and working capital generation.

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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 6 years - has completed in excess of 45 Million $$ of financing for Canadian corporations .
For info on Canadian business financing & contact details :
http://www.7parkavenuefinancial.com/sred_tax_financing_sred_loan.html

How To Finance A Franchise – Your Options and Risk

Entrepreneurs who wish to purchase a new or existing franchise are always asking us ‘What are my Financing Options?”. The ability to choose the right financing option (in reality it is the right mix of financing options) is one of the most important aspects of your entry into the purchase and running of a successful franchise in Canada.

It is of course very rare that a franchise can be purchased for all cash, as the amounts involved can be very significant. And in fact, as we will demonstrate, in many cases that would actually be the wrong thing to do. Even the largest and most successful corporations in the world take on debt, there is good debt and bad debt of course (as consumers we now that also. By utilizing the right mix of debt and your own equity you can properly ‘leverage’ the business for greater rewards and returns.

We will use a quick and somewhat blatant and unrealistic example just to illustrate our point. Let’s say that you wish to purchase a franchise for 250,000.00, which is certainly not an uncommon amount. You have the option of paying cash for it (lets pretend!), or you can put 10,000.00$ down and borrow the rest. At the end of one year your franchise nets 20,000.00 in net income, let’s assume. If you had only put in 10,000.00$ of your own money you have generated a 200% return on equity. Even Warren Buffet would be jealous of you. However, had you put in 250,000.00$ of our own money you can clearly see you have many years to go before you get a positive return on your significant initial investment.

So whats our bottom line – it’s simply that debt and the right amount of leverage can be a good thing, and it’s an excellent way to measure the potential returns in any business, including your investment into a Canadian franchise.

Let’s return to our core topic, financing your franchise. The reality is that are several options in Canada to finance your purchase. Those options can relate to either a new or existing franchise – both are quite financeable. One of the main reasons you might wish to consider purchasing an existing franchise is that in some cases the track record and the assets in the business might present an easier case for financeability.

Franchise financing in Canada is absolutely a specialized type of financing. When we sit down with clients to evaluate their options d and focus on the quickest and best way to achieve franchise financing success we can summarize your financing options in the following manner –

-Government Small Business Loan – (By far the most common and popular)

-Your own personal equity or down payment (typically from 10-50%)

- Equipment and asset financing

- Working Capital Term Loan

- Operating facility for ongoing requirements

- VTB – (Vendor take back) – in some cases the franchisor or the seller of the current franchise will waive full payment and agree on a final pre agreed upon payment to be made at some point in the future

Whether you consider yourself financially astute, or if you are concerned and worried that you don’t know enough about financing in general, it is strong recommended you align yourself with a trusted, credible and experienced advisor in franchise financing. Understanding your options, picking your options, and executing on those options within your timelines is the key to franchise financing success.

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http://www.7parkavenuefinancial.com/HOW_TO_FINANCE_A_FRANCHISE_IN_CANADA.html

Asset Based Financing in Canada – 3 Things You Must Know

More and more Canadian business owners continue to hear about and in some cases start to investigate asset based lending as an alternative method to generation additional working capital and cash flow. This type of financing is predominantly used in the U.S. and is become much more available and popular in Canada.

When we meet with clients to discuss the benefits of asset based lending and asset based lines of credit we highlight three things they need to know. Those 3 things are as follows :

1. You need to know what an asset based line of credit is and what it is not

2. Understanding the qualifications and daily mechanics of the facility is important

3. Asset based financing pricing differs - here’s why

Let’s examine some of the key data you need to know to determine if this type of financing is form your firm, and that you can benefit from the facility. First of all in terms of what we are discussing an asset based line of credit is not an asset loan per se - There is no additional debt that appears on your balance sheet, if, for example, you were thinking this asset loan is in fact term debt. It is not. It is simply what we can call cash lending, or cash flow monetization - your firm is utilizing asset based financing as an alternative method to generate business financing. Due to tight credit conditions and the generally improving prospects of Canadian firms it is becoming an increasing attractive method of financing your firm.

An even better way to thing of it is to view it as a direct competitor to chartered bank lending in Canada, on an ’ operating ’ or revolver basis. Your firm would consider this type of financing in one of two circumstances - you don’t qualify for bank financing, or, as in many cases, you have financing in place but it simply does not supply with the amount of cash flow and working capital you need.

Let’s move on to # 2 - qualifications and methodology. In general asset based financing in the form of a revolving facility is available to any firm. We tell clients that a solid entry point with respect to financing needs is in the area of 250k and above. If you didn’t know it some of Canada’s largest corporations utilize this type of financing - if they do why shouldn’t your firm consider this alternative. On an ongoing basis you simply supply, usually monthly, reports on your receivable and inventory levels. You are then advanced funds against these two asset based balance sheet accounts.

The only difference is that in general, 99% of the time you receive higher advances on your receivables and inventory than you would from a bank. The reason is that the banks focus on traditional balance sheet, income statement and operating metrics - while an asset based line of credit focuses predominantly on one thing, the asset!

Pricing in Canada is all over the place with respect to these types of facilities. We tell clients this is for a number of reasons , one of which is simply that the Canadian market is under developed in this area and consists of some large U.S. firms, and a number of smaller Canadian firms, privately owned, who are in some cases geographically constrained or have certain limits themselves with respect to their own capital based .Pricing in Canada varies form 9% per annum, and can in fact go up to 2% per month if in fact your firm has significant challenges but could benefit from the financing . Your ability to turn assets quicker and generate more cash and profits can significantly offset any cost. For this reason we recommend to clients that you deal with a trusted, credible, and experience advisor in this area who can confidently walk you through the ’ ABL ’ (ASSET BASED LOAN) maze.

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http://www.7parkavenuefinancial.com/asset_based_financing.html