Unlock Cash Flow with Accounts Receivable Financing Factoring

THE IMMEDIATE CASH FLOW SOLUTION

Accounts Receivable Financing Factoring revolutionizes business financing by turning outstanding invoices into immediate working capital.

Unlock your business's potential today by turning invoices into instant cash flow!

INTRODUCTION

If you, as a Canadian business owner or financial manager, are going to change to a business-to-business financing model such as financial factoring, you want some great reasons why this is a positive move for your cash flow cycle.

Accounts Receivable Financing is a solid solution for companies looking to improve cash flow and fund operations without the delay often associated with banks and traditional financial institutions.

This financing strategy allows businesses to finance their accounts receivable through a third party, thereby unlocking immediate working capital and facilitating smoother financial operations. By transforming invoices into liquid assets, companies eliminate the waiting period for payment collection, making this method an invaluable tool for managing cash flow and investing in growth opportunities.

As a business owner, if we had asked you this question yesterday: “Where will your cash flow be six months from now?", what would have been your answer? We're betting that you would say that you don't know the answer to that one - however, with accounts receivable financing, you can now say with certainty that if you have sales, you will have cash flow! It's as simple as that.

Let's examine some of the key reasons that you, as a business person, would (or perhaps should!) consider financing your receivables through the right factoring financial company.

WHAT ARE THE BENEFITS OF FACTORING? FACTORING ADVANTAGES AND DISADVANTAGES

There are numerous reasons why Canadian business owners should investigate the key benefits of financing receivables via an invoice financing company -

These include

1. The ability to maintain liquidity and cash flow with consideration to additional equity financing /owner financing

2. Factoring facilities grow automatically as your sales revenues grow - allowing you to maintain a consistent cash flow.

3. Businesses can offset financing costs by taking early payment discounts with key suppliers.

4. Companies can take on larger orders /sales/ contracts/purchase orders without fear of cash flow problems.
Payment terms can be extended to critical strategic customers via invoice payment extensions.

Disadvantages? So what about that cost of factoring? There isn’t a day when we won’t be debating that issue with customers. In Canada, the cost of business-to-business financing and financial factoring ranges from 1 . 1.5% a month on balances - yet don’t forget we've shown you how to potentially cut that cost in half when you utilize the cash flow generated positively!

IMPROVE LIQUIDITY

From the outside, it seems fairly simple. Your company appears to have become a cash flow machine just by utilizing this type of financing for Canadian businesses. And what could be better than a financing strategy that doesn't add debt to the balance sheet and doesn’t dilute your ownership? That seems to be two powerful 'what's in it for me' reasons right there!

But will this type of business financing benefit your firm? We'll say two things about that—it will, but, and it’s a big but, only if you manage the whole process properly. Very clearly speaking, it’s a case of having a strong handle on your overall financial position at all times.

Let's be honest, too. Your current cash flow problems did not happen overnight, and your ability to manage working capital and plan for cash flow needs is key to everything we are discussing here.

Clients are always asking about the benefits of financial factoring—that seems obvious: You can grow your sales revenues, purchase additional products such as key inventory requirements, and enjoy other benefits that many Canadian business owners almost always forget.

What is that crucial benefit? But, you can now reduce the cost of this type of financing by utilizing cash to take supplier discounts and purchase your goods in a 'smarter and harder' way. Imagine telling your suppliers you will pay them on delivery... if you can get a better price.

THE FACTORING PROCESS IN FINANCE

Canadian businesses that consider business-to-business financing come in all shapes and sizes! You can set up a facility to finance 15k a month, or you can set up a facility for tens of millions of dollars. Larger facilities come with improved rates and a day-to-day business model that you will find more accommodating.

HOW DO FACTORING COMPANIES MAKE MONEY?

Commercial factoring firms fund client invoices with a pre-agreed-upon advance based on the business's value—this advance is typically in the 85-90% range. When the customer pays the invoice, the remaining balance is paid to the factoring client minus a fee, expressed as a cost, not an interest rate.

How fast do factoring companies pay?

Factoring companies are known for their fast application process. When facilities are approved, businesses typically receive funding for their invoices the same day or, at the latest, the next business day.

How do you calculate factoring costs?

When companies finance receivables via banks, the facilities are priced at an interest rate commensurate with bank rates, which are low and competitive. These credit lines are secured by an assignment of the company's receivables and structured on an unsecured line of credit basis.

Factoring costs are based on a discount fee, which is not an interest rate, so the two types of financing are not necessarily comparable.

Is factoring considered debt?

Financial factoring of receivables does not add debt to the balance sheet, so "debt factoring " is a misnomer. Businesses using factoring providers monetize assets on the balance sheet, so no loans are in place.

KEY TAKEAWAYS

Working Capital Management: Efficiently managing short-term assets and liabilities ensures that a company can meet its operational needs and handle its short-term financial obligations.

Cash Flow Improvement: By converting accounts receivable into cash, businesses can immediately reinvest in operations, reducing the cycle time for product and service delivery.

Invoice Management: Streamlining the process from invoicing to cash collection minimizes delays and administrative burdens, speeding up the entire cash conversion cycle.

Financial Risk Reduction: Factoring transfers the default risk of receivables to the factor, providing businesses with more predictable cash flow and reducing financial uncertainty.

Business Growth Funding: With improved cash flow and reduced financial risk, companies can more readily invest in growth opportunities, such as expanding operations or entering new markets.

CONCLUSION

Small and medium-sized businesses in Canada do not always maintain a positive cash balance. This is primarily because they sell on open trade credit terms and because many large and small clients pay slowly. Growing businesses must constantly invest in A/R investments, which leads to tight cash flow.

What is Factoring

Factoring finance and factoring services are a type of business financing that allows customers to sell accounts receivables to a commercial factoring firm in return for a cash advance.

This process accelerates cash flow as the financial factoring company provides immediate financing for goods and services delivered and allows a company to meet current day-to-day obligations and current liabilities. The financial evaluation of factoring comes with numerous benefits for firms that cannot access all the bank financing they need. Factoring in financial services is often a much more simplified process in setting up approved facilities.

What are the types of factoring in finance?

Two types of factoring/invoice discounting offered by financial factoring companies are recourse factoring and non-recourse factoring - The economic aspects of factoring via non-recourse financing allow a company to transfer credit risk to the finance company for the factoring transaction in the factoring facility. Most factoring companies offer both types of financing.

This is opposite to traditional recourse factoring where a company maintains credit and bad debt risk associated with the extension of trade credit.

By selling your outstanding invoices to a factor, you receive immediate cash, which improves cash flow, reduces financial risk, and supports business growth.

What distinguishes Accounts Receivable Financing Factoring from traditional loans?

Unlike loans, factoring provides immediate cash based on sales, not creditworthiness, improving liquidity without increasing debt.

Yes, factoring can help improve your business's credit standing by ensuring timely payment of obligations and producing a positive cash benefit.

It is particularly beneficial for businesses with long invoice payment cycles and need quick access to working capital. Only commercial or government receivables can be financed, not ' consumer' receivables.

How quickly can I access funds through Accounts Receivable Financing Factoring?

Typically, businesses can access funds within 24 to 48 hours after invoice submission and approval.

What are the typical fees associated with Accounts Receivable Financing Factoring?

The factoring fee will vary by factor company but generally includes a percentage of the invoice amount, reflecting the service's convenience and risk. Accounts receivable factoring requires that a firm have good gross margins to ensure financing costs can be covered.

Factors often manage receivables discreetly, but choosing a reputable factor ensures professional interactions and maintaining customer relationships.

Yes, most factoring services allow businesses to choose which invoices to sell, offering flexibility in managing cash flow. Invoice value is a key consideration in ' spot factoring ' of individual invoices.

In recourse factoring, the business must buy back unpaid invoices—non-recourse factoring places the risk of non-payment on the factor, typically at a higher cost.

How does Accounts Receivable Financing Factoring fit into a broader financial strategy?

An accounts receivable factoring company can be part of a diversified financial strategy, providing flexible, immediate funding while other longer-term financial arrangements are pursued.

This depends on the agreement. Non-recourse financing for factoring receivables may not require personal guarantees, whereas recourse factoring often does, reflecting the difference in risk allocation.

' Canadian Business Financing With The Intelligent Use Of Experience '

Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil

Accounts Receivable Financing Factoring: Transforming Invoices into Opportunity | 7 Park Avenue Financial