YOUR COMPANY IS LOOKING FOR RECEIVABLE FINANCING
INVOICE FACTORING FOR CASH FLOW NEEDS
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Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
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EMAIL - sprokop@7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Unlock your invoices' hidden potential: Turn unpaid bills into instant cash!
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer Factoring Finance solutions 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”
FACTORING COMPANIES IN CANADA
The factor finance solution in Canada.
When financing a Canadian business, a few clients we meet these days admit they have done a HIROO ONODA to avoid understanding receivable financing from factoring companies as a cash flow method.
Choosing the Right Factoring Company
IS IT TIME TO SURRENDER TO NEW BUSINESS CASH FLOW ALTERNATIVES
HIROO ONODA? He was a soldier in the Japanese army who had heard the war had ended on his remote island station.
The result? He spent 30 YEARS doing things the same old way, not knowing the world had changed around him. So bottom line, it might be time to surrender to the new alternatives in Canadian business financing. Let’s dig in.
Regarding the best factoring companies, the focus is only on improving your cash flow and ensuring accounts receivable are appropriately managed through accounts receivable financing.
FACTORING WORKS BECAUSE NUMEROUS TYPES OF FUNDING ARE DIFFICULT TO OBTAIN
How, then, has one single method of financing your firm changed the landscape so much?
Some might argue that banking in the SME sector is somewhat ‘down for the count ‘ these days—it’s simply hard to achieve the amount that you need.
One effective solution is a cash advance, where businesses receive immediate funds based on future anticipated sales.
DEFINITION AND PROCESS OF FACTORING
Factoring is a financial transaction where a business sells its outstanding invoices to a third-party company, known as a factoring company, at a discount.
This process allows businesses to receive immediate cash flow rather than waiting for their customers to pay their invoices. The factoring company then collects payment on the invoices from the business’s customers.
The factoring process typically involves the following steps:
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A business sells its outstanding invoices to a factoring company.
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The factoring company advances a percentage of the invoice value to the business.
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The factoring company collects payment on the invoices from the business’s customers.
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The factoring company returns the remaining percentage of the invoice value to the business minus a factoring fee.
By following these steps, businesses can unlock immediate cash flow, ensuring they have the funds needed to cover expenses, invest in growth, and seize new opportunities without the wait.
BENEFITS OF FACTORING
Factoring provides several benefits to businesses, including:
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Improved cash flow: Factoring allows businesses to receive immediate payment on their outstanding invoices rather than waiting for their customers to pay. This immediate cash flow can be crucial for covering day-to-day expenses and investing in growth opportunities.
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Increased business growth: With improved cash flow, businesses can invest in new opportunities, hire more staff, and expand their operations. This can lead to increased revenue and a stronger market position.
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Reduced risk of bad debt: Factoring companies typically assume the risk of customer non-payment, reducing the risk of bad debt for the business. This means businesses can focus on growth without worrying about unpaid invoices.
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Flexibility: Factoring can be used by businesses of all sizes and industries and can be tailored to meet the specific needs of each business. This flexibility makes it an attractive option for many companies looking to improve their cash flow.
MASTERING THE TERMINOLOGY OF ACCOUNTS RECEIVABLE FINANCING
Part of the challenge of understanding what the factoring company in Canada does is wading successfully through this finance mechanism's different terms and offerings.
It’s very easy to miss the big picture or, even worse, to miss out on the right type of receivable financing for your business.
Choosing the right factoring provider is crucial, as their reliability and trustworthiness can significantly impact your business’s financial health.
WHAT ARE THE BEST TYPE OF FACTORING COMPANIES?
Our most recommended solution is CONFIDENTIAL RECEIVABLE FINANCING, which allows you to retain full control of the billing, collecting, and financing functions of your sales while still generating the cash flow you need for operations.
So, pretty much everyone uses that these days, right? Wrong. We would guess that only a small majority of firms that utilize A/R finance are even aware of confidential factoring.
Business owners can also choose non-recourse factoring, allowing them to transfer collection and bad debt risk to a third-party factor company, eliminating cash flow problems almost in entirety.
It's no secret that many clients are even trying to pay in 90 days these days, not your typical 30-day terms, as many business owners have experienced.
That creates a credit crunch you don’t need. Recourse factoring is a more standard offering, with your firm managing credit risk and addressing those slow-paying clients in the best manner possible to increase a/r turnover.
It’s crucial to consider factoring fees, ranging from 1% to 5%, as they impact the overall cost of factoring services.
Why is the case then? We can probably chalk that up to many factors - companies who don’t take the time to investigate how A/R finance works or industry players who don’t offer this method of financing and, therefore, have minimal inclination to explain it to you.
By the way, pretty much all the banks in Canada don’t offer a stand-alone ‘ factoring ‘ solution unless it’s a subset of much larger transactions in the millions. That certainly eliminates most of the SME sector when it comes to receivable portfolio size.
We’re often amazed at how clients seem to stumble on the factor finance solution in Canada.
They are looking for alternatives, start talking to people, and suddenly realize, just like our friend HIROO ONODA, that there’s a whole new world of financing options.
FACTORING SERVICES ARE A PART OF THE TOTAL ASSET-BASED LENDING SOLUTIONS
Factoring companies in Canada can address facilities in all sizes for every firm; it tends to work best and makes sense when your receivables are in the 250k range and above.
In many cases, as we have alluded to, factoring in Canada is a subset of a total asset-based lending facility that includes your inventory and equipment, but stand-alone factor financing - i.e. just for your receivable works quite well on a stand-alone basis.
When evaluating factoring providers, consider their fee structures, reputation, and specific services tailored to different industries.
KEY TAKEAWAYS
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Invoice purchase: Factoring companies buy unpaid invoices, providing immediate cash.
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Advance rates: Businesses typically receive 70-90% of the invoice value upfront.
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Fee structure: Factoring costs include discount rates and processing fees.
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Credit checks: Factors assess customer creditworthiness to mitigate risks.
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Recourse vs. non-recourse: Different agreements determine liability for unpaid invoices.
INDUSTRIES SERVED BY FACTORING COMPANIES
Factoring companies serve a wide range of industries, including:
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Transportation: Factoring companies provide financing solutions to trucking companies, freight brokers, and other transportation businesses, helping them manage cash flow and cover operational costs.
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Manufacturing: Manufacturers, wholesalers, and distributors can benefit from factoring services to maintain steady cash flow and invest in production and inventory.
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Construction: Construction companies, contractors, and builders often face long payment cycles. Factoring helps them bridge the gap between project completion and payment, ensuring they have the funds needed to take on new projects.
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Healthcare: Healthcare providers, medical billing companies, and medical suppliers can use factoring to manage cash flow and cover expenses while waiting for insurance reimbursements and patient payments.
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Staffing: Staffing agencies, recruitment firms, and temporary employment agencies can benefit from factoring to cover payroll and other expenses, ensuring they can continue to provide quality services to their clients.
By providing financing solutions to these industries, factoring companies help businesses improve their cash flow, reduce their risk of bad debt, and increase their business growth.
CONCLUSION
So, what should the business owner and financial manager do when they seek alternative non-bank financing for accounts receivable?
A good choice might well be to speak to 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor who can help you ensure that the cash flow achieved via a factoring company in Canada works to the max for your firm and makes factoring work.
Invoice factoring allows businesses to sell their outstanding invoices to a third party, providing immediate cash flow and reducing the wait for customer payments.
It is the small business working capital lifeline you need to run and grow revenues while obtaining immediate cash from sales, typically within 24 hours. Factoring services for accounts receivables are a lifeline for your business needs as they relate to day-to-day short-term funding.
FAQ
How does a factoring company improve my business’s cash flow?
Invoice factoring providers purchase your outstanding invoices, providing immediate cash that you can use to cover expenses, invest in growth, or seize new opportunities without waiting for customers to pay.
Can invoice financing help my business avoid taking on debt?
Yes, accounts receivable factoring is not a loan. It’s a sale of your receivables, allowing you to access working capital without incurring debt or affecting your credit score.
Will using an invoice factoring company save me time and resources?
Absolutely. Factoring companies often handle collections and credit checks, freeing up your time and resources to focus on core business activities and growth strategies.
How quickly can I receive funds from invoice factoring companies?
Most invoice factoring services provide funds within 24-48 hours of invoice submission, allowing you to swiftly address immediate financial needs and opportunities.
Is factoring suitable for businesses in all industries?
Factoring can benefit companies in various sectors, particularly those with business-to-business models and longer payment terms. It’s beneficial for industries like manufacturing, transportation, and staffing.
What’s the difference between factoring and a traditional bank loan?
Factoring involves selling your invoices for immediate cash, while a bank loan is borrowed money you must repay with interest. Factoring is based on your customer’s credit, not your business’s credit score.
Do I lose control of my customer relationships when using a factoring company?
Not necessarily. Many factoring companies allow you to maintain customer relationships and handle collections professionally. Some even offer non-notification factoring, where customers are unaware of the factoring arrangement.
Are there any upfront costs associated with factoring?
Most factoring companies don’t charge upfront fees. Instead, they deduct their fees from the invoice value when your customer pays. However, reviewing the agreement carefully for any potential charges is essential.
Can I choose which invoices to factor in?
Yes, many factoring companies offer flexible arrangements where you can select specific invoices or customers to factor in, giving you control over which receivables to sell.
How does factoring impact my business’s financial statements?
Factoring typically appears on your balance sheet as a sale of assets (receivables) rather than a loan. This can improve your debt-to-equity ratio and make your business more attractive to other lenders or investors.
What factors should I consider when choosing a factoring company?
Consider the factor’s industry expertise, fee structure, advance rates, funding speed, customer service quality, and whether they offer recourse or non-recourse factoring. Also, review their reputation and client testimonials.
How does a factoring company assess my customers' creditworthiness?
Factoring companies use various methods, including credit reports, payment history analysis, and industry data. They may also contact customers to verify invoices and assess their financial stability.
Can factoring help my business during seasonal fluctuations?
Factoring can be particularly beneficial during seasonal peaks, providing the working capital needed to fulfill large orders or cover increased operational costs without straining your finances during slower periods.
