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Financing & Cash flow are the biggest issues facing business today
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EMAIL - sprokop@7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Accounts receivable finance solutions in Canada require some level of 'deconstruction' to understand both the benefits and pitfalls of receivables lending offerings. Let's dig in.
A/R financing in the Canadian marketplace is a 'non-bank solution, allowing businesses to finance their receivables for cash flow and working capital needs. The key difference from bank financing is that the cost of this financing is expressed as a ' fee ' instead of an ' interest rate' solution via traditional Canadian chartered bank offerings.
The ability to get 'same day cash for sales you generate is appealing to Canadian business owners/financial managers. One of the appeals of this type of financing is that the receivables' amount is almost always more than a bank would advance. (Typically 90% - that remaining 10% is simply a holdback reserve that you receive when your client pays your invoice)
At its simplest accounts, receivable finance works almost always as long as you have commercial 'business to business' invoice sales that reflect product and or services your firm has delivered on.
Receivables lending solutions should never be viewed as 'debt' or 'equity' financing. All you are doing is monetizing existing assets - your A/R.
Cost is always a factor when owners/managers consider financial solutions. Recall we indicated invoice financing is billed as a ' fee ' and that fee is typically 1.5-2% of your sales. (The fee will always be a function of how long your receivables are outstanding - prudent owners/managers can therefore reduce financing costs by effective A/R management)
The benefits of a receivables lending solution are many - they include the ability to grow your business at almost any level of growth: additionally, you can improve supplier relations and take payment discounts from your own vendors, thereby enhancing key vendor relationships. In many cases, if your firm has good margins and can absorb growth financing costs, you're in a position to take on larger contracts or even sell to the government as well as large corporations who tend (intentionally?) to pay SME firms much more slowly. ( Hint – it’s their version of cash management!)
Have we forgotten anything? Oh yes, those potential ' dangers ' in acquiring the right solution. They include understanding the following basics:
Ensuring you understand whether you or your commercial finance firm is responsible for bad debts - your ability to extend credit properly and manage collections reduces financing costs
Being able to articulate your customer base to enjoy better pricing - size and invoice age are factors that will help determine your pricing.
Working with the right company - many Canadian marketplace offerings are focused on specific industries - example: Trucking; working with a firm that understands your industry... you guessed it... helps.
Finally, most receivable finance solutions that are non-bank in nature in Canada require that your clients be notified of the finance process. Our recommendation? Consider a Confidential Receivable Finance solution that allows you to bill and collect your own accounts.
If you're interested in a solid ' peek ' into A/R financing solutions in Canada, with a focus on the best solution that suits your firm while eliminating pitfalls, seek out and speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor that can assist you with your cash flow needs.
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Stan Prokop
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