YOUR COMPANY IS LOOKING FOR A/R FACTOR FUNDING!
ACCOUNTS RECEIVABLE FACTORING FINANCING OPTION
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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?
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EMAIL - sprokop@7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Account receivable factor funding companies provide cash flow financing to Canadian businesses - from start ups to established businesses. What is the secret to their success, how do they work, and why is this sought after method of financing your business for a b2b company. We've got some thoughts, and answers on small business lending for cash flow success. Let's dig in.
THERE IS NO SHUTDOWN IN CANADIAN RECEIVABLE FINANCING SOLUTIONS
These days all business owners hear about on the business news is shutdowns. Well, there's no shutdown in Canadian A/R financing solutions ( also known as invoice factoring) - they are alive and well, and open for business.
FACTORING HAS BEEN AROUND FOR ALMOST FOREVER!
The use of factoring company funding in Canada can be considered a triumph of innovative financing. The reality though is that it’s only been around as a business finance tool for hundreds of years. At the heart of the matter is the concept of using your sales, and the business receivables they create as collateral for cash flow.
IT'S ALL ABOUT YOUR COMPANY OPERATING CYCLE
All of a sudden the time that it takes a dollar to flow through your business (your ' operating cycle ‘) is dramatically shortened... and that’s a good thing.
THE COST OF ACCOUNTS RECEIVABLE FINANCING
The cost of financing your receivables depends on who you finance them with. In typical cases it’s done by our Canadian chartered banks under commercial lines of credit; when that isn’t possible that role is taken over by an A/R factor funding financing company... typically a non-bank. When you finance your sales and receivables through the bank the cost is an annual interest rate based on bank rates available to business for your outstanding invoices for your paying customers.
In the case of A/R finance and receivables factoring the cost is not an annual interest rate, it’s a short term 'discount', also called a factoring fee based on the invoice amount. Under that mechanism, your arrangement is funded via a sale of your A/R, at a ' discount' as we have noted. Your balance sheet is affected in a very positive manner - receivables disappear and cash appears. Those factoring fees are often confused with interest rates, which they are not.
The factoring agreement facility becomes a type of credit line to fund your day to day operations. In any type of receivable financing, the overall credit quality of your client base, your payment terms, and turnover of assets such as A/R is key to business success in a bank or factoring transaction. Most firms are unable these days to collect in the traditional 30 days - thereby increasing their interest expense on any business borrowing.
ASSIGNING YOUR RECEIVABLE TO THE BANKS, OR SELLING THEM TO A THIRD PARTY FACTOR FIRM - IT ONLY PAPERWORK!
In our two examples, the key concept is 'secured borrowing '(the bank) via assigning your receivables as collateral, and the ' SALE ' of your accounts via factoring companies.
WHY IS FACTORING SO POPULAR WITH THE BUSINESS OWNER
Why is factor funding so popular then? It couldn’t be simpler - your firm receives immediate cash for sales made instead of waiting anywhere from 30-90 days these days. Result? Instant cash and working capital. We also note that factor funding is typically provided at 90% of your accounts receivables base in the funding process ; typically banks only advance on 75%. In both cases, the balance is a holdback of sorts. Those advance rates in the factoring arrangement mean more business capital inflows to your company - allowing you to constantly build up your cash balance.
HOW DOES FACTORING AFFECT THE BALANCE SHEET?
Some of the largest companies in the world sell their A/R in this manner - the Bay street boys call it a fancier name - Securitization. You can choose between non recourse factoring or the more widely used recourse factoring, depending on the amount of credit risk for non payment that you wish to absorb in your customer base until the invoice is paid as well as other factors around your credit terms and who you are selling to.
Old style A/R Finance in Canada for SME small businesses typically has the factor funding company playing a major role in your billing and collecting procedures. Our recommendation for our clients is a factoring program we at 7 Park Avenue Financial call CONFIDENTIAL RECEIVABLE FINANCE, allowing you to get all the benefits of factor funding while still maintaining full control over all your billing and collecting.
CONCLUSION
If you want to be part of the triumph of A/R financing for small business owners in Canada seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in utilizing this solid method of cash flow financing.
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Stan Prokop
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