Mastering Factor Rates and AR Finance Pricing For Canadian Receivables Financing Strategies

We rarely meet a client who is comfortable enough to say they are a ' Master ' of AR financing pricing when it comes to receivables financing in Canada. Let's see if we can help you achieve some ' Master ' status

in this often confusing (but shouldn’t be) area of business financing in Canada.

So why is there a combination of mystery and clarity around using just your accounts receivable for cash flow and working capital financing. It's key to remember that when you look at this type of financing it's important to understand what is happening, shall we say ' beneath the transaction'. Because factoring/receivable financing in Canada is essentially the sale of you receivable and that's how it must be both recorded in your book keeping and accounting.

Let's get some of that ' boring' accounting out of the way quickly.

The entry is pretty basic - it’s a ' CREDIT ' to your receivables and a DEBIT (that’s an increase in your cash by the way) to your cash account. Mission accomplished!

Since your factor company / financing partner takes a discount fee for purchasing your receivables, either once, or on an ongoing basis you also have to take into account the financing charge, so that’s an additional entry as a DEBIT to your interest account .

One final entry, and we promise, it’s the last one, but when complete you will have now understood the actual mechanics of AR finance pricing. That entry involves the ' hold back ' since typically you receive only 90% of your invoices as cash as you generate them. The 10% is a hold back; - you receive that when your client pays, so you need to set up one final entry as ‘DUE FROM FINANCE FIRM '.

If we had to be honest (that’s our preference always!) we would have to say that our favorite/ recommended method of financing receivables is a Confidential Receivable Financing ‘arrangement - that is one in which your firm bills and collects your own receivables, with how you finance your business being your own business!

That type of arrangement still allows you to receive all the benefits of receivables finance:

Immediate cash on your sales generations
Balance sheet strength
Ability to take supplier discounts and achieve better vendor pricing

Etc!

Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can help you simplify Canadian receivable financing.

7 PARK AVENUE FINANCIAL
CANADIAN RECEIVABLE FACTORING EXPERTISE




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 10 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/factor-rates-ar-finance-pricing-receivables.html





7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Phone = 905 829 2653
Fax = 905 829 2653
Email = sprokop@7parkavenuefinancial.com


















Stan Prokop

Debt Financing . What Factors Determine The Type Of Business Funding

Financing Via Debt


OVERVIEW – Information on the advantages and potential risk of debt financing in Canada . Factors that determine business funding when non equity solutions are required to fund Canadian firms.



Debt financing. When it comes to business funding that is ' non equity ' in nature the business owner and manager can benefit from a number of business financing solutions. A good solid way to begin is to ensure which solutions are available and to ensure you understand the pros and cons of each.

When it comes to debt finance solutions it's paramount to remember that the lender, finance firm, bank etc is not sharing profits and is at risk - as such pretty well their only focus is getting paid!

In a way that’s the benefit, i.e. one of our ‘pros’ of taking on debt - You know exactly what conditions and rates come with the loan ( hopefully!) - It's just up to you to ensure you have the cash flow to repay. So broadly speaking, you're very much in control, unlike being at the whims of an equity investor.

Let's recap some of the key sources of debt financing in Canada - they include:

Bank loans
Government Small business loans
Leasing
Mortgages

Also included in our list are:

Inventory financing
Receivables factoring
Asset based credit lines
Tax Credit Monetization
Supply Chain /PO Finance

These latter 5 monetize current assets so they are in fact a bit of a hybrid.

Most companies very quickly discover that no firm can be properly financed with 100% debt, so it’s important to keep in mind the relationship between debt and equity. That equity in fact becomes the business owners risk and that’s why it's probably also prudent to manage your debt load.

What factors affect a company's ability to get debt financing? In smaller to medium sized firms the actual credit status and history of the owners is very important.

Is size important in debt financing? It sure is! Many firms constantly struggle to acquire more debt based on their growth needs. We can pretty well guarantee to clients that if the proper cash flow projections aren't available, realistic and accurate that not a lot of debt financing is going to take place.

Rates are of course critical in debt financing, and are typically commensurate with the risk profile of your firm, as well as the nature of the firm or bank you are dealing with. The same pretty well goes for collateral, whether that is personal or corporate as a ' back up ' to the debt financing facility.

It's critical to exercise diligence and caution when taking on debt for your firm. Just the actual ratio of debt to equity is a good number to always monitor ... 2 times debt to equity is a commonly respected ratio. When it’s higher than that you're force to generate extra cash just to pay and service that debt.

We're pretty sure that we make debt sound like somewhat of a burden. That is not the case though, as the right amount of debt and overall leverage can make your company more successful, and if there is one guarantee in life it’s that debt is cheaper than equity. And remember also that there are a number of non bank firms that can supply the debt you need if you are rejected by our Canadian banking system.


In many cases rates and size of the loan or loans you seek might be appropriate but the overall conditions the loan demands may not be suitable. That's when you might well seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your debt financing and funding needs.

7 PARK AVENUE FINANCIAL
CANADIAN DEBT FINANCING EXPERTISE


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 10 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/debt-financing-business-funding.html






7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Phone = 905 829 2653
Fax = 905 829 2653
Email = sprokop@7parkavenuefinancial.com








Stan Prokop

Funding Your Business ? Loan Financing Programs And Solutions That Match Your Needs

Tired Of Wasting Shoe Leather On Business Financing?

OVERVIEW – Information on funding and business loan financing programs for the Canadian business owner




It's no secret that when it comes to business financing you can use up a lot of ' shoe leather ' in your search for the proper funding for your company. It conjures up the image of the old ' gum shoe ' detective tirelessly searching for a lead ...!

Let's examine some key basics that might bring you some clarity, and solutions when it comes to external, and yes internal funding.

Whether you are an entrepreneur looking for start up financing or an established business looking for growth finance it always comes down to the search for capital, right ? We're making the key assumption here that you've got business savvy and knowledge - now you just need the capital!

From a start up business point of view that might be funds for working capital as your revenue ramps, or alternatively it might just well be funds for inventory equipment and general operating expenses. While in early stage companies that might come from friends and family and bootstrapping type techniques sooner or later you'll need real world assistance from real world banks and commercial finance firms.

Trade credit from suppliers is a key element of business finance and funding that many business owners and financial managers overlook. Just the ability to negotiate 60 day terms on any of the products or supplies you need delays cash outflows. In a perfect world if you can make and sell and collect you product within those 60 days you have in effect become self financing. Oh and by the way... Congratulations!

Where do you stand with Canadian chartered banks? That' a tough one , because both start ups and fast growth firms are typically very challenged to obtain bank financing in Canada. Our banks, rightfully so, want to be ' comfortable ' and start up ventures and astronomic growth scenarios don't necessarily lend themselves to comfort!

The bank questions are actually more simple than you might think - will be get paid back, who exactly are we dealing with there, if we don’t get paid back what happens next. When you think of it you would ask those same questions of anyone you were lending your own money to.

The bank then takes those questions and then drills down to the next level - so you should focus on being able to supply a solid story around:

Understanding your Business and Industry
Having a financial projection and story that ' makes sense'


It's very important for the business owner/manger to address the issue of what the finance folks call ' matching assets and financing '. Simply speaking its keeping a balance on what you are financing and how. The key principle here is that you finance short term assets with short term financing as an example. A real world example might be a receivable financing program to fund your investment in receivables.

The other side of the coin and here is where things go wrong... is when you use long term financing to fund short term assets. Example: taking out a mortgage on your house or company's building to fund inventory.

So if we had to make a key point today its that you should view Canadian business financing in terms of the life cycle of your business. Are you just starting, growing, or mature? There's a difference then in which of the following finance vehicles might make the best sense to your firm:

Receivable financing
Leasing
Working Capital
Asset Based Lines of Credit
Bank financing
Govt Business SBL loans
Bridge Loans
Tax Credit Monetization
Supply Chain financing

They all work... at certain times, and in certain situations... for your growth and survival. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can help you save some of that ' shoe leather' in your search!

7 Park Avenue Financial
Canadian Business Financing Expertise


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 10 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/funding-business-loan-financing-programs.html




7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Phone = 905 829 2653
Fax = 905 829 2653
Email = sprokop@7parkavenuefinancial.com












Stan Prokop

Government Business Loans Eligibility In Canada . The SBL BIL Loan Just Might Be For You!

Are You SBL Worthy? Eligibility Issues For Canadian Government Business Loans

OVERVIEW – Information on government business loans in Canada . Eligibility for the SBL BIL loan must be addressed properly to reap the benefits of this program


Government business loans in Canada! You can pretty well guess or imagine that is one of the first questions we always get from a client is - am I eligible? So, are you SBL (Small business loan) worthy? Let’s examine the facts.

First of all one should be commended for looking into and exploring the program, because via Industry Canada the SBL Loan in Canada helps many thousands of businesses every year .

As we have said in the past we don't necessarily think that the 350k loan cap on the program is that ' small ' either - although we're pretty sure Warren Buffett isn’t using the program . Actually he can't, because of one the first eligibilities are that one has to be able to borrow legally in Canada via landed immigrant or citizenship status. So that quickly covers off one of our first eligibilities we guess.

There is both misinformation and misunderstanding around what your firm can borrow against under the program. To keep it simple the program is primarily used for equipment, leaseholds, and real estate. That equipment by the way can in fact include technology and application software, which are often components of many clients borrowing under the BIL loan.

That kind of brings one around to what can't be financed under the program. So it’s very important to clarify that the loan is not a cash term loan, it cannot finance working capital components such as receivables and inventory, and it cannot finance goodwill. Having said that though we remind clients that the program can be an excellent tool for acquiring a company if the firm being purchase has assets.

There is perhaps the perception by some out there that this is an 'easy money' program. While in fact it offers excellent rates, terms and structures it is important to point out that to be eligible you have to demonstrate a minimum of 10% permanent equity or down payment and the owner or owners of the firm must have a reasonable personal credit history.

The good news though that while it is very difficult for start ups to get initial financing for their business government business loans, aka the ' SBL / BIL ' are the perfect solution for a start up business that needs financing . That includes franchises by the way.

Suffice to say that you need a solid business plan and projection also, which can easily be prepared by a business advisor or accountant, etc - that’s of course for those that might not be 100% comfortable in preparing such projections.

One of the great features of the program is the limited guarantee - you as a borrower are only required to guarantee 25% of the loan personally. That leads us also to clarify that you must be able to demonstrate that you have some personal assets to back up that 25% guarantee - Naturally that’s the worst case scenario, so let’s stay optimistic here, right?

So, are you SBL loan worthy? You just might be, so seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist your with your SBL business loan need .

7 PARK AVENUE FINANCIAL
CANADIAN SBL LOAN FINANCE EXPERTISE





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 10 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/government-business-loans-sbl-bil-loan-canada.html

7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Phone = 905 829 2653
Fax = 905 829 2653
Email = sprokop@7parkavenuefinancial.com






Stan Prokop

The Cost Of Factoring Shouldn’t Be A Hot Potato ? AR Rates And Funding Receivables Is Not What You Thought!

A New Look At Factoring Pricing In Canada

OVERVIEW – Information on the cost of factoring . AR Rates in Canada may not be what they seem when you consider the key issues in funding receivables and sales growth for your company


Does the cost of factoring finance, i.e. AR rates for funding receivables really have to be a ' hot potato ‘?

We don't think so, and here is why.

The cost to finance a receivable of course revolves around the ongoing sale of your A/R at a discount. That discount is essentially the core of our cost perception issue.

Otherwise things are pretty much the same, meaning that in the ordinary course of busines you are still responsible for collecting your accounts in a timely manner, and furthermore, in a worst case scenario, the customer’s inability or refusal to pay your firm still incurs a bad debt for your company. So far so good, right? We should mention that you can get what is known as non- recourse AR finance, but that is obviously a bit more expensive and essentially tied to the concept of credit insurance.

A Finance factor firm is going to look at hopefully the same issues that you look at when you enter into extending credit into your clients - i.e. client references, credit limits, collection history, etc . That's just Business 101 and the reason why large corporation invest hundreds of thousands / millions of dollars into credit and collection departments that will ultimately drive the company’s cash flow and operational results for sales and collections.

Benchmarked against the costs of funding receivables are of course the benefits. They key benefit is pretty obvious; your firm receives cash essentially the same day as you make your sales. You're now in a position to do something that many of your competitors may not be able to do, and that’s to offer terms and credit limits to many of your clients that even your competition might not be able to do.

Second benefit. It's virtually unlimited credit to your firm - you're not going cap in hand to apply or renew Canadian chartered bank lines.

So lets get down to the nitty gritty . The cost of receivable finance. They key point we want to make today is simply that many Canadian business owners and financial managers don't really understand the true cost of what they are paying already , even when they are not factoring . Let’s look at our key example today:

Let's say your firm has a made a $10,000.00 sale and has generated an invoice to your client. Let’s say the customer is very late and pays you in 100 days. If we assume your company can borrow money at today’s rates in the 6% range as an example the cost to carry that receivable, i.e. just wait! is approx. $160.00.

What we have just demonstrated is what is known as the cost to carry a receivable. If your firm had a receivables funding factor facility in place a typical cost to fund that receivable for a 60 day period might be 300.00. With that new found cash that you have obtained immediately you are in a position to take supplier discounts, buy more inventory, generate another sale, and make more profits.

Doing nothing and just waiting for a client to pay, carrying your clients, is obviously not a great thing.

Generally in Canada factors that determine your AR rates and cost of factoring are your sales volumes, average invoice balances, number of clients, and general perception of credit worthiness of your clients and your industry.

Our recommended solution is confidential factoring, which allows you to reap all the benefits we have hopefully noted, with your firm being in control of billing and collections - i.e. no third party involvement.

Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your financial needs when it comes to receivables funding.

7 PARK AVENUE FINANCIAL
CANADIAN RECEIVABLE FUNDING EXPERTISE


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 10 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/ar-rates-cost-of-factoring-funding-receivables.html



7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Phone = 905 829 2653
Fax = 905 829 2653
Email = sprokop@7parkavenuefinancial.com





























Stan Prokop

Wizard In Working Capital Solutions And Finance Cash Flow Tools? You Are Now!

Is Your Working Capital Situation Scarier Than A Zombie Movie?



OVERVIEW – Information on working capital management solutions in Canada . What tools are available to finance cash flow and manage business finances properly ?

The constant battle for working capital for the Canadian business owner - it's a continuous journey. And sometimes it’s a scary one, maybe not as scary as some of those popular Zombie movies...

but pretty close sometimes!

Are there some finance cash flow tools and knowledge we can share? You guessed it... there are. So we’re of course talking about the funds that are in fact, hopefully ... ' working ' in your short term operations. It's critical to understand a couple of key concepts before we can take you to that toolkit of solid cash flow solutions. So the concept of ' net working capital which is really the difference between your short term assets and liabilities is critical. And at the end of the day the final success you have in financing your business comes down to two key areas -

How you manage those assets
How you finance those assets

Simple as that.


When you think of it, you’re basically on a constant journey with this whole issue. We read an analogy the other day where you might be considered either a warrior or a wizard when it comes to certain aspects of business success. We suppose that we are saying that you have to be a bit of both.

The ' warrior ' aspect of today’s issue is your constant effort to turnover assets, but at the end of the day you have to be a bit of a wizard,

especially if you are growing, because that investment in receivables and inventory is in effect your permanent investment. So both your lenders and yourself have a vested interest in how you are doing on that issue - especially if bankers, other lenders, lessors, etc have loans outstanding.

When you think about it the real challenge of finance cash flow tools is really the issue of using the financial solution that comes with an appropriate rate and risk level.

So what are some of the working capital solutions that your firm can employ? They might be one or several of the following:

Bank credit facilities

Receivable financing

Asset based lending

Supply chain/Purchase Order Finance

Sale leaseback of fixed assets (we’re a bit outside out current asset scenario here but sale leasebacks do work)

Tax Credit monetization

Securitization of receivables/contracts

While we would all probably agree that it would be great to have a precise formula around which solution worked best that’s not the real world of course! It simply becomes a case of ensuring that the increases in sales you are enjoying are financed properly. And you want to be able to do that proactively... we can't count the number of clients who we meet who are in emergency cash flow crunches. Why? Because they didn't plan or use some basis analytical tools to measure the performance of their receivables, inventory, and payables.

Seek out and speak to a trusted, credible and experienced Canadian business financing manager who can assist you with your finance needs. It doesnt have to be scarier than a Zombie movie!

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 10 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/working-capital-finance-cash-flow-tools.html





7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Phone = 905 829 2653
Fax = 905 829 2653
Email = sprokop@7parkavenuefinancial.com























Stan Prokop

Lease Finance Decision Time? Financing Equipment Assets In Canada – Done Right!

What Time Is It? It’s Asset Finance Time.


Information on lease financing in Canada . Financing equipment assets requires decision making before, during, and at the end of the lease in order to maximize financing benefits



Lease finance decisions in Canada seem to be pretty common place in Canada these days when Canadian business owners and financial managers are financing equipment assets for their firm. It couldn’t be more basic, paying a leasing company for the use, and potential ownership of business assets. But wait! Just how important are some of the implications and financing decisions around this popular method of business finance.

Let's look as some of the positive implications of equipment finance in Canada, while at the same time pointing out some of the potential pitfalls,

because there are a few if you're poorly armed with the right information.

It pretty well always starts with the reasons that the business owner/manager looks at when acquiring new business assets. And those reasons? They are:

Convenience

Risk

Tax/accounting

Financial Need

In many cases the financial need simply comes from the large cost that might be associated with any new business asset - for example a new computer and software system for your firm, the intent being to make you more ' competitive '. And as in all scenarios associated with cost the ability to arrange competitive financing quickly and to the terms you need drives the final leasing decision.

They are probably not given enough of their due for this, but we shouldn’t forget that the leasing company is assuming both financial and asset risk when they finance your transaction, so finding a lease company partner with the right... shall we say .. attitude about helping you out is a good thing!

Using our example of a technology need the whole issue of technological obsolescence is key when it comes to lease finance. These assets tend to depreciate quickly and also change, seeming everyday?! when it comes to what’s in and what’s hot.

Your accountant will tell you that there are all sorts of tax and accounting benefits, and as we said, sometimes implications involved in the leasing of an asset. They include depreciation, budgetary issues, tax, etc. The larger your equipment lease is the more implication some of these issues might have, so we advise clients to never forget to address what might be the boring stuff to them!

Both you and the lessor should consider the issue of maintenance and insurance on leased assets. For the lessor it’s protecting the financial risk in their transaction. Remember the lease company is a financial partner, not an operating partner, so maintaining the assets you lease is critical.

We often run into clients that have what is known as a ' pride of ownership ' when it comes to acquiring assets. That’s all fine and good of course, but don’t forget that with a properly structured lease you can in fact assume ownership at the end of the lease term, all the while having reaped the cash flow benefits of using and paying for the asset.

So our bottom line today..? simply that it’s worth some quality time

when it comes to decision time in Canada for lease financing and financing equipment assets. Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with right strategies around this important method of asset acquisition.

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 10 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/lease-finance-financing-equipment-assets.html






7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Phone = 905 829 2653
Fax = 905 829 2653
Email = sprokop@7parkavenuefinancial.com











Stan Prokop