Why Factoring Cash Flow Financing Receivables Works!

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ACCOUNTS RECEIVABLE FACTORING COMPANY SOLUTIONS IN CANADA

Factoring / Canada – these two words, relatively speaking, are new to each other. What is behind the sudden increase in popularity and usage of this age-old financing concept which has been in place for hundreds of years around the world?

YOU'VE GOT CHOICES IN ADDRESSING THE CASH FLOW CHALLENGE

First of all, it’s simply a new choice for Canadian business owners and financial managers when it comes to cash flow issues – they either have been financing their receivables with their bank via bank loans or lines of credit or, in many cases, have been unable, for a variety of reasons, to negotiate such a facility. Factoring firms place little or no emphasis on the business owners' credit history - it's all about sales and your ability to fund cash flows as sales grow. Good profit margins are always desirable as they help absorb financing costs.

THE NEW PARADIGM SHIFT IN CANADIAN BUSINESS FINANCING

The challenge for business financing in Canada is even more difficult based on a company’s smaller size coupled with the current challenging business environment of economic and pandemic issues.

If you have the proper facility put in place, Factoring in Canada allows you to provide your firm with virtually unlimited cash flow based on your ability to generate valid receivables as you grow your business. This is absolutely critical for small and medium-sized businesses – they didn’t coin the term ‘cash is king’ for nothing! when it comes to outstanding invoices and finance.

THE CONCEPT OF DEBT FACTORING

While the concept and general practice of factoring in Canada seem simple, once the business owner learns about it, we feel the greater challenge is to determine the best factoring solution for your firm. That is where an experienced, trusted, and credible financial advisor might be of great assistance.

WHAT DOES FACTORING COST?

Factoring costs vary, and business owners and financial managers can choose between recourse factoring and non recourse factoring / receivable factoring depending on the level of credit risk they wish to maintain around non payment issues . Factoring is priced in terms of a factoring fee, not an interest rate per se. Use 7 Park Avenue Financial team to explain what most factoring companies don't about many issues. Facilities will vary depending on your client base's size, overall credit quality, and creditworthiness. New customers can easily be added to your facility.

If entered into improperly, Factoring can be very paper-intensive and have significant ramifications on how you run your business and how others perceive your business – by others, we mean bankers, suppliers, and yes, even internal staff.

As you contemplate a Canada factoring solution, you must ensure you have, at a minimum, covered off the basics on funding account receivables. A good starter is ‘ Does my firm qualify for such a financing facility?’ .. as well as will this solution fix your sales growth and cash flow problem challenges. The ability to get a cash advance as you generate sales is highly desired by almost all small businesses in every industry.

HOW QUICKLY DO YOU RECEIVE FUNDS?

Typically your bank account is credited the same day or the next day, i.e. within 24 hours latest for approx 90% of the sales invoices/face value invoice amount of the original invoice - the remaining percentage of the invoice value balance held back till your client pays. This is a great solution for growing businesses, as you can see.

Your firm clearly should be labour or product-focused – very capital-intensive industries sometimes are not the best candidate for a factoring facility in Canada.

While no one wants to finance a firm that is in somewhat of a ‘death spiral ‘the exact opposite of that often makes the firm an excellent factoring prospect – that is to say, you are growing too quickly, with annual growth perhaps much more than the traditional 10% or so that we see in stable commodity-oriented industries in Canada.

High growth and factoring make the perfect marriage. Why is that? Simply because growing sales, if managed well, mean growing profits, and traditional financing strategies such as bank lines or working capital term loans are not a good fit for explosive growth firms. With explosive growth, you get all the cash flow you need from factoring.

Factoring firms have many software solutions to automate processes via back office support and payments these days, and facilities can often be set up in one to two weeks, for example. Factoring evolved very quickly in Canada based on the inability of many firms in the SME Sector to access financing.

FACING CASH FLOW CHALLENGES?

Many industries are cash flow and labour intensive and have short-term cash needs around their business model. A solid example would be freight companies or staffing/placement agencies that require cash flow frequently throughout the month. A properly set up factor facility will allow your firm to generate cash flow from your accounts receivables whenever you need it. Rarely can other types of financing provide immediate cash without bringing debt to the balance sheet?

In many firms, there as seasonal issues, big contracts, and generally what’s known as ‘bulges ‘in normal requirements. Factoring transactions solutions via receivable financing from factoring companies fit these sorts of bulge needs perfectly.

We meet with business owners who come to us as start-ups or relatively new – they are not aware they are often great candidates for accounts receivable factoring/factor financing (also sometimes called invoice discounting). Still, they clearly have discovered they are not candidates for traditional bank-type financing that requires solid balance sheets, historical short-term cash flow, and good operating ratios that institutions like the Canadian banks typically look for.

You also are a perfect candidate for Factoring in Canada if you have receivables from large slow-paying customers. These larger firms might be good profitable customers for your business based on just the issue of sales volume, but they clearly tie up your working capital when your firm is not paid in 60 or sometimes even 90 days.

The ability to improve your financial position and meet your own payment deadlines is a top priority for any business. Getting more cash and quick cash is job 1 when it comes to a/r financing.

CONCLUSION - ACCOUNTS RECEIVABLE FINANCING

In summary - Factoring is relatively new in popularity in Canada for small businesses, and it is gaining traction quickly. Careful analysis should be spent on whether your firm qualifies for such a facility – it has to work for you and the lender. If in doubt, and many are, cause anything new can be perceived as complicated – speak to 7 Park Avenue Financial , a trusted advisor with credibility and experience in this area of Canadian cash flow financing for this and other options of debt and cash flow finance.

FAQ: FREQUENTLY ASKED QUESTIONS

Factoring for cash flow is a financing alternative to traditional bank loans. Instead of borrowing money and creating new debt, factoring converts your earned invoices into the immediate useable funds you need while not being obligated in repayment like other forms of debt such as term loans.

In a typical transaction, there are three parties: the company that sells its accounts receivables, the factor who purchases those assets and finally, any of their customers. All three must be satisfied for this deal to go through, so you must do everything in your power to make sure they have what they need from both ends!

' 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

Factoring Cash Flow Financing Receivables | 7 Park Avenue Financial

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