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ACCOUNTS RECEIVABLE FINANCING SOLUTIONS
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Financing & Cash flow are the biggest issues facing business today
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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Tired of waiting for customers to pay? Turn your invoices into instant cash with accounts receivable financing factoring!
"Accounts receivable financing factoring is not just about managing cash; it's about unlocking the potential for growth that lies dormant in your balance sheet." - Anonymous Financial Expert.
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer Accounts receivable financing factoring and working capital solutions – Save time and focus on profits and business opportunities
7 Park Avenue Financial: “Canadian Business Financing with the intelligent use of experience”
A/R FINANCING IN CANADA
Accounts receivable financing in Canada, also known as ' receivable factoring -
Paying proper attention to business details rarely pays off, and that's what we maintain this method of Cash Flow financing is all about—the ability to get paid as you generate sales for your products and services.
And, despite what you perhaps have heard, there’s no real harsh reality here. Let's dig in.
Accounts Receivable Financing Factoring: A/R Financing Via Factoring Companies is Part of Canada's Asset Based Lending Solutions
Accounts receivable financing in Canada is a ‘ subset ‘ of asset-based financing in the Canadian business financing marketplace.
So why should the Canadian business owner or financial manager pay attention to this financing solution?
There is only one reason: this financing allows a cash flow advance to your company as you create sales. So, if you believe cash flow and working capital are critical to your business (that’s a mantra we NEVER give up on), then you’re pretty well on board already.
Accounts receivable factoring, a type of accounts receivable financing, involves selling your receivables to a third party at a discount.
This method improves cash flow, enhances customer service, and provides ease of access compared to traditional loans.
It includes various types, such as recourse and non-recourse factoring, each with benefits and costs.
RECEIVABLE FINANCE IS TYPICALLY NON-BANK LENDING
Non-bank lenders offer this method of financing 99.9% of the time.
Commercial finance companies specialize in providing your firm with a business-based accounts receivable line of credit. Accounts receivable factoring companies operate by assessing invoices for payment based on criteria such as customer creditworthiness, the age of the invoice, and industry specifics.
LET A/R FINANCE BE YOUR NEW BUSINESS LINE OF CREDIT - BETTER THAN THE BANK? YOU DECIDE!
This type of facility works like a traditional business loan or bank line of credit (you supply regular accounts receivable and sales aging—funds are advanced).
One immediate positive difference is that these funds generally advance at 90% of your outstanding a/r under 90 days - banks, surprisingly taking a more conservative approach, (!) advance at only 75%.
DIFFERENT FROM THE BANK
If we had to clearly identify to our clients one major concern most companies have it's the level of involvement of the A/R financier in your business when you borrow under this method.
While banks register security against your receivable and allow you to borrow funds against a specified limit at your will, the A/R financing solution can be described as ' more involved '.
Why is that? One basic reason is that many firms that borrow from banks have a financially more robust financial profile. Firms utilizing AR finance often cannot meet bank criteria for any or all of the borrowing they need.
WHAT IS THE BEST TYPE OF ACCOUNTS RECEIVABLE FINANCING
So is there a way to retain all the benefits of a business line of credit in A/R financing and control full ownership and control of your billing and sales function?
There is… and it’s called CONFIDENTIAL RECEIVABLE FINANCING. Under this method, your firm retains total command of your cash flow cycle.
To determine how much capital you can access, you need to calculate accounts receivable factoring by evaluating eligible accounts, calculating advance rates, and deducting factoring fees.
The bottom line is that you’re receiving all the benefits of A/R financing while being the master of your domain! , i.e., billing and collecting within our current customer relationships. Your business typically receives cash on the same day as you generate it.
THE COST OF FINANCING
Another key factor, often also becoming a harsh reality, is that Receivable financing from a commercial finance firm is more expensive than bank financing, which, of course, these days is in the low single digits when it comes to interest rates on business credit facilities.
The size of your AR facility is often a key determinant in pricing.
While a small majority of firms in Canada can, in fact, achieve bank-type pricing on this type of credit facility, the overall cost of cash flow financing of receivables from a non-bank finance firm is typically in the 1-1.5 % per month range.
But when you compare that to having all the cash you want and being able to take on as much business as you want, it’s not the worst tradeoff in the world.
A/R FINANCING VIA FACTORING COMPANIES IS PART OF CANADA'S ASSET-BASED LENDING SOLUTIONS
Accounts receivable financing in Canada is a ‘ subset ‘ of asset-based financing in the Canadian business financing marketplace.
So why should the Canadian business owner or financial manager pay attention to this financing solution?
Only one reason that this financing allows a cash flow advance to your company as you create sales by using the company's accounts receivable as a mechanism to secure loans using their unpaid invoices -
So if you believe cash flow and working capital are critical to your business (that’s a mantra we NEVER give up on) then you’re pretty well on board already.
RECEIVABLE FINANCE IS TYPICALLY NON-BANK LENDING
This method of financing is offered 99.9% of the time by non-bank lenders. Factoring accounts receivable provides businesses with immediate cash flow by converting unpaid invoices into cash advances.
Commercial finance companies specialize in providing your firm with a business-based accounts receivable line of credit.
LET A/R FINANCE BE YOUR NEW BUSINESS LINE OR CREDIT - BETTER THAN THE BANK? YOU DECIDE!
This type of facility works in the same manner as the traditional bank line of credit (you supply regular accounts receivable and sales aging - funds are advanced).
Factoring receivables is another financing option for businesses to improve cash flow by selling unpaid invoices for immediate cash.
One immediate positive difference is that these funds are generally advanced at 90% of your outstanding a/r under 90 days - banks, surprisingly taking a more conservative approach, (!) advance at only 75%.
DIFFERENT FROM THE BANK
If we had to clearly identify to our clients one major concern most companies have it's the level of involvement of the A/R financier in your business when you borrow under this method.
While banks register security against your receivable and allow you to borrow funds against a specified limit at your will, the A/R financing solution can be described as ' more involved '.
Why is that? One basic reason is that many firms that borrow from banks have a financially stronger financial profile. Firms utilizing AR finance often cannot meet bank criteria for any or all of the borrowing they need.
WHAT IS THE BEST TYPE OF RECEIVABLES FINANCING
So is there a way to retain all the benefits of a business line of credit in A/R financing and control full ownership and your billing and sales function?
There is… and it’s called CONFIDENTIAL RECEIVABLE FINANCING. Under this method, your firm retains total command of your cash flow cycle.
Bottom line: You’re receiving all the benefits of A/R financing while being the master of your own domain with a confidential A/R facility—i.e., billing and collecting within our current customer relationships. Your business typically receives cash on the same day as you generate invoices.
Invoice factoring offers quick access to cash flow and is considered low risk compared to traditional loans, but it can also come with high costs and potentially impact client relationships.
THE COST OF FINANCING
Another key factor, often also becoming a harsh reality, is that Receivable financing from a commercial finance firm is more expensive than bank financing, which, of course, these days is in the low single digits when it comes to interest rates on business credit facilities.
Invoice financing allows businesses to use unpaid invoices as collateral to secure an advance on their cash flow, differentiating it from invoice factoring.
The size of your AR facility is often a key determinant in pricing.
While a small majority of firms in Canada can, in fact, achieve bank-type pricing on this type of credit facility, the overall cost of cash flow financing of receivables from a non-bank finance firm is typically in the 2% per month range.
But when you compare that to having all the cash you want and being able to take on as much business as you want, it’s not the worst tradeoff in the world.
Most companies can offset a huge amount of their financing costs by funding their outstanding invoices on the balance sheet by achieving faster asset turnover. This also allows companies to take discounts with suppliers now, often equaling the total cost of their borrowing!
So, if you haven’t paid attention to this method of a factoring company solution, now just might be the time—its short-term access to immediate cash and financing may just be the fix for the inevitable cash flow crunch.
Employing the services of a trusted, credible, and experienced Canadian business financing advisor such as 7 PARK AVENUE FINANCIAL just might eliminate the harsh realities that were at the top of your mind when it came to financing accounts receivable in your business.
KEY TAKEAWAYS
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Invoice factoring involves selling unpaid invoices to a third-party factor for immediate cash.
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Factors advance a percentage of the invoice value, typically 70-90%, providing rapid access to working capital.
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Upon customer payment, the factor remits the remaining balance minus fees.
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This financing method quickly improves cash flow by converting accounts receivable into liquid assets.
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Factoring companies often handle collections, allowing businesses to focus on core operations.
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Credit risk shifts to the factor, potentially reducing bad debt expenses for the business.
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Unlike traditional loans, factoring does not create new debt obligations on the balance sheet.
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Eligibility primarily depends on the creditworthiness of a company's customers rather than its own financial position.
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Factoring fees vary based on invoice volume, customer credit quality, and payment terms.
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Businesses benefit from increased financial flexibility and reduced administrative burden associated with collections.
CONCLUSION
Most companies can offset considerable financing costs by funding their outstanding invoices on the balance sheet and achieving faster asset turnover. This also allows companies to take discounts with suppliers now, often equaling the total cost of their borrowing!
So, if you haven’t paid attention to this method of a factoring company solution, now just might be the time—its short-term access to immediate cash and financing may be the fix for the inevitable cash flow crunch.
Call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor might eliminate those harsh realities that were top of mind when financing accounts receivable in your business.
FAQ
How does accounts receivable financing factoring improve cash flow?
Accounts receivable financing factoring improves cash flow by converting unpaid invoices into immediate cash. This allows businesses to access funds that would otherwise be tied up for 30, 60, or even 90 days, providing the liquidity needed for daily operations and growth initiatives.
What are the advantages of using factoring over traditional bank loans?
An Accounts Receivable Factoring Company offers several advantages over traditional bank loans. It provides faster access to cash, doesn't create new debt on your balance sheet, and approval is based on your customer's creditworthiness rather than your own. Additionally, factoring companies often handle collections, reducing your administrative burden.
Can accounts receivable financing factoring help my business grow?
Yes, accounts receivable financing factoring works and can significantly contribute to business growth. Providing immediate access to working capital allows you to take on new projects, purchase inventory, hire staff, or invest in marketing without waiting for customer payments. This financial flexibility can accelerate your growth trajectory.
Is factoring suitable for businesses in all industries?
Factoring suits many industries, particularly those with business-to-business (B2B) transactions and longer payment terms. It's especially beneficial for manufacturing, wholesale, distribution, staffing, and service industries. However, the suitability may vary depending on your business model and customer base.
How does the factoring process work?
The factoring process typically involves three main steps: 1) You submit your invoices to the factoring company, 2) The factor advances a percentage of the invoice value (usually 70-90%) within 24-48 hours, and 3) When your customer pays the invoice, the factor remits the remaining balance to you, minus their fee. This process repeats as you generate new invoices.
What criteria do factoring companies use to approve businesses?
Factoring companies primarily assess the creditworthiness of your customers rather than your own business. They look at your customers' payment history, financial stability, and industry reputation. Additionally, they consider the quality and authenticity of your invoices and your business's overall financial health.
How does accounts receivable financing factoring affect my relationship with customers?
Factoring can affect customer relationships in various ways. Some businesses worry about customers' perception of factoring, but many factors operate discreetly. Communication is key – informing customers about the change in payment instructions and reassuring them about the continuity of service can help maintain positive relationships.
Are there any tax implications of using accounts receivable financing factoring?
The tax implications of factoring can vary depending on how the transaction is structured and your specific tax situation. Generally, factoring is treated as a sale of an asset rather than a loan, which may have different tax consequences. It's crucial to consult with a tax professional to understand the specific implications for your business.
What alternatives to accounts receivable financing factoring should I consider?
While factoring can be an excellent solution, alternatives include traditional bank loans, lines of credit, peer-to-peer lending, or invoice discounting. Each option has pros and cons, and the best choice depends on your business needs, financial situation, and growth plans.
How can I determine if accounts receivable financing factoring is right for my business?
To determine if factoring is right for your business, consider your cash flow needs, customer payment terms, growth plans, and current financing options. Evaluate the costs of factoring against the benefits of improved cash flow and reduced administrative burden. Consulting with a financial advisor or factoring specialist can help you make an informed decision.
What is the difference between recourse and non-recourse factoring in accounts receivable financing?
Recourse factoring means you're responsible for buying back unpaid invoices, while non-recourse factoring shifts the risk of non-payment to the factor. Non-recourse factoring typically has higher fees due to the increased risk for the factoring company. The choice between the two depends on your risk tolerance and the creditworthiness of your customers.
How do factoring fees compare to traditional financing costs?
Factoring fees are generally higher than traditional bank loan interest rates when expressed as an annual percentage rate (APR). However, factoring offers additional benefits such as faster funding and flexible credit limits and often includes services like credit checking and collections. When comparing costs, consider the total value proposition, not just the fee percentage.
Can accounts receivable financing factoring help improve my business credit score?
Accounts receivable financing factoring can indirectly help improve your business credit score by providing the cash flow needed to pay bills on time and manage your finances more effectively. However, factoring doesn't directly impact your credit score as it's not a loan and doesn't appear on your credit report. Maintaining good relationships with factors can produce positive references for future financing needs.
