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Struggling with cash flow? Discover how Cash Flow Receivables can provide the financial relief your business needs.
Cash Flow Receivables unlock immediate liquidity for businesses by converting outstanding invoices into cash.
INTRODUCTION
Struggling with cash flow? Discover how Cash Flow Receivables can provide the financial relief your business needs.
Waiting for anything good to happen in business isn't our favourite thing to do. That's why cash flow finance via a purchase receivables strategy to finance your business eliminates waiting.
Effective cash flow management is key to any business striving for growth and funding day-to-day operations. Cash Flowing Your Receivables is a strategic solution that converts outstanding invoices into immediate working capital. This allows your business to meet operational expenses such as accounts payable and other short-term obligations, as well as being able to invest in growth opportunities while reducing financial stress.
The Need for Immediate Cash Flow
Waiting for what? The question becomes: 'Would you rather have cash in the bank now for your sales, or would you prefer to wait 30, 60, and oh wow... 90 days for the funds due your firm from your clients?'
The Obvious Choice: Factoring
The answer is pretty obvious, of course, and that’s why factoring, aka the purchase of your receivables by an independent finance firm, is one of the quickest and most solid ways to eliminate the cash flow growth and survival programs that come with growing your business. Of course, those cash flow challenges come from the simple fact that as you sell more, your inventory and receivable portfolio grows.
Underutilization of Factoring
So why don’t hundreds of thousands of firms that are eligible for this method of financing utilize it? We don’t know for sure, but we often think it boils down to either they haven’t heard about it, or they have but don't understand how it works.
Benefits of Cash Flow Finance
How could Canadian business owners not consider using a financing method that eliminates the pressure of having cash on hand, making payroll, and paying government taxes such as HST and employee remittances?
How Factoring Works
How, then, does cash flow finance via factoring work? It couldn’t be simpler. As you make sales, you are able to borrow immediately, and by immediately, we mean 'same day' against those sales. The way the industry handles the mechanics around this is that your A/R is, in effect, 'purchased' as you generate sales. And by the way, with the right type of facility, you certainly are under no obligation to finance all your sales, only the required amount. That’s a key flexibility option.
Confidential Factoring Programs
In our opinion, the best purchase receivables program is a confidential one that allows you to bill and collect your own A/R. The majority of the industry in North America does not offer this solution, but working with an experienced advisor allows you to choose this method over the traditional one as long as you identify upfront in discussions that the confidentiality aspect is important to you.
Daily Mechanics of Factoring
‘Can we learn more about the daily 'mechanics' of this method of financing?' That's a typical client question, so here's the answer. As you generate sales, you submit invoices for the product that you have rendered or delivered. (Service receivables can be financed also!)
Typically, you receive 90% of those funds the same day - the balance is held as a holdback or buffer. You receive the other 10% when your client pays, less a discount of approximately 2% for financing costs if your terms are 30 days and your client pays in 30 days. Otherwise, daily per diem charges run until your customers pay.
The Advantages of Factoring
So why is this method of Canadian business financing fast, and why is it effective simultaneously?
Accelerating Cash Flow
The answers should seem obvious—you accelerate cash flow, and your receivables are the asset you are borrowing against, so no debt is incurred. At the same time, as a business owner or financial manager, you're doing what we think you do best—running and growing your business, getting new larger orders, etc.!
KEY TAKEAWAYS
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How Cash Flow Receivables Work: You can convert outstanding invoices into immediate cash by selling them to a factoring company, which provides quick liquidity.
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Benefits: Improve cash flow, meet operational expenses, invest in growth opportunities, and reduce financial stress without incurring debt.
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Eligibility Criteria: Businesses with outstanding receivables from creditworthy customers qualify. The value and age of receivables influence eligibility.
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Comparison with Other Financing: Unlike traditional loans, this method focuses on receivables value rather than creditworthiness, offering a flexible financing solution.
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Types of Receivables: These include receivables from sales of goods and services, often within a specified period, typically up to 90 days.
CONCLUSION
Call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor on the method of receivable financing via cash flow finance factoring that works best for your firm.
FAQ
What is cash-flowing receivables?
Cash Flowing Receivables involve converting outstanding invoices into immediate cash by selling them to a factoring company, providing quick liquidity for businesses.
How can Cash Flow Accounts Receivables benefit my business?
These receivables improve cash flow, help meet operational expenses, allow for investment in growth opportunities, and reduce financial stress without incurring debt. The cash flow statement will show the business's sources and use of funds.
What types of receivables can be used?
Receivables from sales of goods and services, typically within a specified period, such as up to 90 days, can be used. Commercial and government receivables are eligible.
How does the application process work?
The process involves assessing the value and age of your receivables and cash flows, followed by an agreement with a factoring company that provides funding based on these receivables.
Are cash-flowing receivables better than traditional loans?
Cash Flowing Accounts Receivables can be better for businesses with valuable receivables but less-than-perfect credit, as they focus on the value of receivables rather than creditworthiness.
What is the interest rate for A/R Financing?
Interest rates are not 'rates' per see, but are expressed as fees - they vary depending on the factoring company and the value of the receivables used as collateral.
Can Cash Flowing A/R be used for any business?
Yes, these receivables are versatile and can be used by various types of businesses that have significant receivables to offer as collateral.
How quickly can I get funding through Financing Receivables?
Funding can be relatively quick, often within a few days after the receivables have been evaluated.
How does the collateral valuation process work?
Factoring companies evaluate your receivables' current value and age, considering factors like customer creditworthiness to determine the funding amount.
What happens if the value of my receivables decreases?
If the value of your receivables decreases significantly, the factoring company may require additional receivables or adjust the funding terms to mitigate their risk.
Can I still manage and use my receivables while they are collateral?
Yes, you typically retain control over your receivables and continue to manage them while they serve as collateral for the funding. This process is called Confidential Receivable Financing.
What industries can benefit most from Cash Flowing Business Receivables?
This type of financing can greatly benefit industries with long payment cycles, such as manufacturing, wholesale, and professional services and help to attain positive cash flow.
How does Account Receivable financing compare to a line of credit?
Unlike a line of credit, Cash Flow Receivables do not create debt and rely on the value of your receivables rather than your credit score. Funds from operating cash flow are critical to any business and are a good measure of asset turnover and cash inflow with a focus on an ongoing positive cash balance.
Can funding receivables help with seasonal cash flow issues?
Yes, this financing method is handy for businesses with seasonal fluctuations in cash flow, given that the income statement and cash flow rarely move in lockstep! It provides liquidity during slower periods when a firm might experience negative cash flow. A business's cash flow statements and projections are useful tools in assessing liquidity needs based on cash payments from clients. Cash transactions and cash equivalents are not part of the business needs analysis.
How does Receivable finance impact my balance sheet?
Cash Flow Receivables convert outstanding invoices into cash, improving liquidity to fund expenses such as accounts payable and potentially strengthening the balance sheet by reducing accounts receivable and increasing net cash flow.
Are there any risks associated with Cash Flowing Receivables?
While generally safe, risks include reliance on your customers' creditworthiness and the potential for decreased receivables value to affect funding. Business owners should focus on historical collection performance to calculate cash flow needs.
What should I look for in a factoring company?
Look for a reputable factoring company with transparent terms, competitive rates, and a solid track record of working with businesses in your industry. 7 Park Avenue Financial is an established originator of accounts receivable financing.
