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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Direct Line = 416 319 5769
Office = 905 829 2653
Email = sprokop@7parkavenuefinancial.com
AR receivables credit solutions came in various manners and offered by a multitude of new and established ' factoring ' finance companies and other commercial finance companies in Canada. There are 7 key considerations in picking the optimal solution for your firm - utilizing these solutions is a smarter way to ensure you have properly evaluated financing that is right for your firm. Let's dig in.
A/R financing is all about financing you need for your daily cash needs. As opposed to a bank ' interest rate ' on your borrowing, a fee is charged. Using a 10,000.00 invoice as an example, a typical fee would be in the 150$ - 200$ range. (Assumes you sell on 30-day terms and are collecting from your clients).
While a factoring finance fee will almost always compute to a higher cost of borrowing vis a vis a bank ( it's not a real apples to apples comparison ) A/R commercial factoring facilities have a more generous borrowing power ( typically 90% ), plus you are achieving the key benefit of receiving cash as soon as you make a sale.
The truth is that pricing from Canadian factoring companies differs greatly, notwithstanding that some of the key fundamentals remain the same - i.e. size of your monthly sales/ client credit quality, age and collectability of your client invoices, as well as any ' special ' services provided with the financing. Some firms actually require you to finance all you A/R, which to us seems like an unfair option!?
It's critical to remember that this is not a loan per se, and it's certainly not equity financing. Bottom line its cash flow financing based on your sales. In meeting clients and discussing this finance option we compare it to a retailer who offers credit card payment options - the retailer is paid immediately by the credit card firm.
Let's come back to our 7 Key Considerations in choosing among factoring finance companies:
1. Responsibility for Bad Debts - Care needs to be given around whether your firm is still responsible for uncollected accounts - this issue also is a component of your overall pricing
2. Client profiles - Issues for discussion typically should include type of clients, geographical location
3.Number of Invoices issued per month and overall Days Sales Outstanding Profile - smaller invoices typically cost more to administer in an A/R finance solution, Also your ability to prove you collect accounts effectively will absolutely lower financing costs
4.Annual financing volume - As in any industry some firms only prefer financing receivables when annual volume is at least several million dollars in revenue; a normal monthly entry point is typically in the 250K range from a monthly A/R total balance
5. Specialized Knowledge - While Commercial factoring companies offer financing to any firm that sells on business credit a handful of firms are focused on specialized verticals, giving them a higher level of expertise in understanding your business.
6. Systems/software/ online solutions - There is substantial ' back office ' work in processing your daily/weekly or monthly funding needs. Ensure your chosen partner has the systems and people expertise
7. Collections - In our humble opinion this could clearly be one of your main considerations. For decades, 99% of all factoring in Canada involves notification to your clients many business owners/finance mgrs don't realize an alternate solution exists. That solution? Confidential Receivable Finance! It allows you to bill and collect your own accounts with no notification of any kind to clients.
If you're looking to assess a proper AR Receivables solution for your cash flow needs and don't have the time or expertise to walk the minefield of factoring finance companies in Canada seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in evaluating and implementing a proper finance facility for your cash flow needs.
Stan Prokop
