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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
"Stop waiting for payments. Start growing your business now."
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer A/R Funding 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”
What Is AR Funding?
Selling receivables via accounts receivable (AR) financing is often a solid move in an overall asset finance strategy.
This financial solution allows businesses to convert outstanding invoices into immediate cash by selling them to finance companies.
But can this financing move lead to bad results? It only can if done improperly. Here’s our view on the secret tricks to successful invoice financing when helping clients with the right moves in cash flow financing. Let’s dig in.
Turn Your Invoices Into Instant Cash: The AR Funding Solution
Drowning in unpaid invoices while business opportunities slip away?
The painful wait for customer payments creates devastating cash flow gaps, forcing you to miss supplier discounts and growth opportunities.
Let the 7 Park Avenue Financial team show you how AR funding provides immediate access to working capital by leveraging your outstanding invoices.
This allows you to maintain momentum without putting any debt on the balance sheet!
Introduction to AR Funding
In today’s fast-paced business environment, maintaining a steady cash flow is crucial for any company's success and growth.
One effective way to achieve this is through Accounts Receivable (AR) funding. AR funding, known as receivable financing, allows businesses to convert their outstanding invoices into immediate cash.
This financial solution provides a lifeline for companies facing cash flow challenges, enabling them to meet their operational needs without waiting for customers to pay their invoices.
Definition of AR Funding
Accounts Receivable (AR) funding, or receivable financing, is a financial arrangement where businesses borrow money against their outstanding invoices.
It involves selling your receivables to a financing company, which then advances a percentage of the invoice value upfront.
The lender charges interest on the advanced amount until the customer pays the invoice. This type of financing is particularly beneficial for businesses that need quick access to working capital to manage their cash flow effectively.
By leveraging the value of their outstanding invoices, companies can secure the funds they need to keep their operations running smoothly.
Importance of AR Funding for Businesses
AR funding is vital in helping businesses maintain a healthy cash flow, especially when dealing with slow-paying customers or extended payment terms.
By selling their accounts receivable, companies can access funds quickly, often within days, rather than waiting weeks or months for customer payments.
This immediate influx of cash allows businesses to cover their operational expenses, invest in growth opportunities, and avoid the financial strain of delayed payments. Additionally, AR funding can improve a company’s financial position by transferring liabilities off the balance sheet, leading to a stronger and more stable economic outlook.
This flexibility enables businesses to offer their customers more attractive payment terms while ensuring they have the cash flow needed to thrive.
The Challenge of Carrying Receivables
Carrying a company's accounts receivable is one of the most considerable liquidity challenges for any business, from start-ups to major corporations. The (hopefully) profits locked up in A/R can contribute to significant cash flow issues if not appropriately funded.
By the way, it helps to turn those invoices into cash faster—with or without financing!
How Traditional Accounts Receivable Financing Works
How does the traditional asset finance strategy of selling receivables work? The fundamentals are simple—potential problems arise when we get down to the weeds.
A/R Funding is simply selling your receivables on an ongoing basis for instant cash. To understand how accounts receivable financing works, businesses receive an advance on their invoices.
Advances on your A/R in this manner are even more generous than those offered by banks. (Banks finance 75%; the right invoice finance facility delivers 90% financing.)
AR Funding and Security Paperwork
Business owners/managers should not get caught up in security paperwork behind an AR asset finance facility.
An accounts receivable financing agreement outlines the relationship and obligations between a business and an AR funding lender. Like banking, it collateralizes your receivables and, like bank facilities, places a blanket security on your firm.
The right commercial A/R finance partner will always allow you to finance equipment, inventory, and other needs separately.
Understanding The Benefits Of Accounts Receivable Financing
Accounts receivable financing, also known as invoice financing or factoring, is a financial strategy that allows businesses to obtain funding based on their outstanding invoices.
Unlike traditional loans, which are based on credit scores and require fixed monthly payments, AR financing is tied directly to the value of a company’s receivables. As your sales grow, so does your access to funding.
There are various forms of AR financing, including factoring, where a factoring company purchases your invoices at a discount, and accounts receivable loans, where the invoices serve as collateral.
The primary advantage of AR financing is improving cash flow without incurring long-term debt, making it an attractive option for businesses looking to manage their finances more effectively.
However, it’s essential to understand the cost structures and potential impact on customer relationships to ensure they align with your business goals.
Key Factors Lenders Assess in AR Funding
What are the key factors in how a lender assesses your A/R portfolio for receivables finance? Typically, they look at:
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Non-North American Receivables: Canadian and U.S. accounts are okay to finance.
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Invoice Amounts and Sizes: Typical amounts and sizes of your invoices matter.
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Quality of Aged Receivables: Invoices over 90 days old can’t be financed.
Why Businesses Consider Non-Bank AR Funding
Advantages of Non-Bank Factoring Companies
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Working with a finance company often results in faster approval for such facilities.
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Generally straightforward paperwork.
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Less reliance/emphasis on owner guarantees.
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Good-quality receivables and your management ensure almost unlimited financing capability—you’ve turned your firm into a cash flow machine.
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General credit quality (often a factor in what industry you are in).
Non-Bank AR Funding and Cash Flow Growth
Commercial A/R financiers and factoring companies love high growth (banks don’t necessarily ascribe to hyper-growth, favouring stability in sales and finances).
Potential Pitfalls of AR Funding
The Cost of Non-Bank AR Funding
So what about those bad results regarding asset finance and selling receivables for a revolving credit facility need?
When you don’t understand the higher cost of non-bank A/R asset financing, things can go wrong. Clients we initially meet are surprised and confused about how various firms price these facilities, especially regarding invoice factoring.
This process involves selling outstanding invoices to a third-party factoring company in exchange for an immediate cash advance, which can significantly impact the cost structure.
Additionally, many clients we meet don’t fully understand this is often an interim solution—its higher cost with unlimited capital often takes clients back to a traditional finance solution.
The Customer Notification Issue with Unpaid Invoices
What is the largest negative in selling receivables? Opinions vary, but we believe that most Canadian business owners and financing managers don’t like the notification aspect that traditional A/R finance demands—i.e., advising your clients that this financing is in place.
However, alternative financing options like supply chain finance can mitigate this issue. Supply chain finance allows businesses to access funds owed to them before invoice settlements, improving cash flow without client notification.
This method also fosters collaboration with suppliers and financial institutions, offering potential growth and financial flexibility benefits.
Confidential Invoice Finance: A Better Solution
Do we have a solution? You bet! Consider a Confidential Invoice Finance strategy, which allows you to bill and collect your accounts while maintaining your client relationships and having access to unlimited funding.
Did you know?
- 64% of small businesses face cash flow challenges
- AR funding market grew by 24% in 2023
- Average invoice payment terms increased to 45 days
- 78% of businesses report faster growth with AR funding
- $185 billion in AR funding volume in North America
Key Takeaways
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Understanding advance rates determines your immediate cash availability from unpaid invoices.
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Credit verification processes impact funding speed and approval rates
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Cost structures combine fees and discount rates to determine total financing expense
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Verification procedures ensure invoice validity and reduce risk
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Funding cycles establish predictable cash flow patterns
Conclusion
So, is selling receivables a solid asset finance move? Speak to a trusted, credible, and experienced Canadian business financing advisor who can assist you with your asset finance needs.
It’s all about those tips, tricks, and secrets for successful business financing.
FAQ
How quickly can I access funds from my invoices?
Accounts receivable financing typically provides access to capital within 24-48 hours after invoice verification.
What percentage of my invoice value can I receive?
Most accounts receivables funding providers advance 80-90% of the invoice value upfront.
Do my customers need to know I’m using accounts receivables financing?
This depends on the funding structure - some programs are confidential, while others require notification.
How does accounts receivables financing improve business growth opportunities?
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Provides immediate access to working capital
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Enables bulk supplier discounts
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Allows for faster inventory turnover
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Supports payroll during growth phases
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Facilitates equipment purchases
What makes accounts receivables financing more flexible than traditional loans?
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No fixed monthly payments
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Funding grows with your sales
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No long-term debt obligations
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Quick approval process
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Minimal paperwork requirements
How quickly can businesses access accounts receivables funding?
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Initial setup within 3-5 business days
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Subsequent funding in 24-48 hours
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Online application process
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Digital document submission
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Real-time funding tracking
What types of invoices qualify for accounts receivables funding?
What are the cost advantages of accounts receivables financing?
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Lower than credit card financing
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No hidden fees
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Transparent fee structure
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Volume discounts available
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Tax-deductible financing costs
Does accounts receivables financing affect my business credit score?
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No impact on personal credit
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Can improve business credit profile
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Builds positive payment history
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Strengthens banking relationships
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Creates financial stability records
What documentation is required for accounts receivables funding?
Can seasonal businesses use accounts receivables financing?
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Flexible funding during peak seasons
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Adjustable limits based on volume
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No annual commitment required
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Scalable solution for varying needs
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Support during off-peak periods
What’s the difference between accounts receivables financing and traditional loans?
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Based on invoice quality not credit score
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Funding grows with sales volume
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No fixed repayment schedule
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Collateral is your receivables
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Faster approval process
How does accounts receivables financing impact customer relationships?
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Professional payment management
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Consistent follow-up processes
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Enhanced payment tracking
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Improved cash flow visibility
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Better credit control systems
What are the qualification requirements for accounts receivables funding?
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B2B invoice focus
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Minimum monthly revenue
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Clean company history
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Verified customer base
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Industry compatibility
