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ACCOUNTS RECEIVABLE FINANCING SOLUTION!
ACCOUNTS RECEIVABLE FINANCING SOLUTIONS IN CANADA
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Financing & Cash flow are the biggest issues facing business today.
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South Sheridan Executive Centre
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Oakville, Ontario
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Struggling with cash flow issues? Discover how factoring in receivables can provide immediate funding for your business needs.
Factoring Receivables: A Powerful Cash Flow Solution
RECEIVABLE FINANCING
Factoring receivables in Canada is how your sales are turned into automatic cash. The good news is that no magician is required in AR financing - And one or two little-known tricks of the trade will allow you to maximize the benefits of accounts receivable factoring. Let's dig in.
Understanding all the different financing options available to Canadian business owners can be overwhelming.
Still, the ability to secure the right funding is crucial for growth and financing your company daily. That's why finding the best business financing option and financing arrangement is more than just a necessity; it’s a strategic move that can propel your business forward.
From traditional loans to the new kid on the block - Alternative financing, understanding the variety of available financing solutions will empower you to make the right decisions that align with your business goals and needs.
Factoring of Receivables: Managing Your Account Receivable Investment Versus Financing Your A/R
By the way, we’re the first to admit and educate clients that there is no replacement for ongoing proper management and due diligence on the receivables you generate from sales.
Accounts receivable factoring is a valuable tool in this process. We’re never more amazed when even clients with great, high-quality customers neglect the ongoing importance of turning that AR investment into cash for operations and growth as they grow revenues in their goods or services.
TALK TO THE 7 PARK AVENUE FINANCIAL TEAM ABOUT OTHER WAYS TO FINANCE YOUR CASH FLOW NEEDS
And yes, there are other ways to generate cash—i.e., working capital term loans, asset refinancing, bridge loans, monetizing any SR&ED tax credits, etc.; but on an ongoing basis, your investment in A/R is the next closest asset to cash on the balance sheet—enough said.
Accounts receivable factoring companies offer services that can be compared with other financing options like business lines of credit, providing an alternative way to manage cash flow needs around money owed to the business.
WHY IS FACTORING / FINANCING A COMPANY'S ACCOUNTS RECEIVABLE THE MOST POPULAR PART OF THE ASSET-BASED LENDING INDUSTRY
The reason? Receiving immediate cash for the invoice amount is one great reason!
Accounts receivable factoring works by selling your receivables to a factoring company, which advances a percentage of the invoice value, typically around 80-90%. The factoring company will then collect payment from your customers.
Part of the lure of this method of Canadian business financing lies in the fact that it’s a simple process. Once your initial agreement is in place (with the ‘right’ commercial lender), you can raise capital in any amount commensurate with your sales growth.
At the right cost and using what we feel is the best way to utilize factoring (we’re talking about CONFIDENTIAL ACCOUNT RECEIVABLE FINANCE), you have just turned your company into a cash flow machine.
WHAT IS THE BEST TYPE OF A/R FINANCING
What then are the advantages of Confidential AR Financing from an accounts receivable factoring company?
The largest benefit should be self-explanatory—it’s in the ‘ MIND YOUR OWN BUSINESS ‘ category. It allows you to finance your cash flow needs without your suppliers, clients, etc., knowing your financial strategy.
99% of receivable factoring in Canada requires your clients to be notified in this process. That is not the optimal strategy the Canadian business owner and financial manager sought.
USE YOUR INVOICE FACTORING FACILITY LIKE A LINE OF CREDIT
Your method of a sales line of credit is to utilize confidential receivable financing via your trusted factoring company. It's comparable to a bank facility but at a high cost. The trade-off is that you have all the capital you need when you can't access it through traditional sources.
EXAMPLE OF ACCOUNTS RECEIVABLE FACTORING - HOW DOES ACCOUNTS RECEIVABLE FINANCING WORK?
Unlike a bank loan, factoring paperwork states that your firm sells its accounts rather than the bank, where you have to assign your A/R.
Here’s an excellent example of how the cost of this method of business financing works. Let’s use a $ 10,000 invoice as an example. When you are in a position to invoice your customer for services rendered or products delivered, you will pay approximately 200.00$ for a 30-day’ loan ‘ on that balance. If your customer pays in 60 days (unfortunately, many do!), the finance charge becomes $400.00.
To calculate accounts receivable factoring, you need to determine eligible accounts receivable, calculate the advance rate, and subtract factoring fees.
Remember that cash in your bank is now used to generate more sales and grow profits. You can even reduce your financing costs by using part or all of those funds to take discounts with your own suppliers—who now suspect you’re cash-rich!
The finance charges represent factoring fees and are not an interest rate, a point often misunderstood regarding the factoring fee.
When your invoice is paid, the process repeats as your business sells products and services and generates sales.
It’s a short-term process that addresses all your day-to-day cash needs. Small businesses can use the factoring program to meet their business needs while growing their business. It allows companies to achieve cash flow success based on their investments in assets such as a/r.
You also have the option to choose non recourse factoring, allowing you to transfer all credit risk and bad debt risk to the factoring company, as opposed to the standard recourse factoring of receivables.
KEY TAKEAWAYS
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Accounts Receivable Financing: Understanding how the accounts receivable loans process allows businesses to sell their invoices at a discount to improve liquidity.
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Invoice Financing / Factoring: Recognizing the method of selling receivables to a factoring company to receive immediate cash via the concept of ' invoice discounting '.
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Cash Flow Management: Learning strategies around receivables finance to maintain optimal cash flow through the use of factoring and the accounts receivable loan solution
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Non-Recourse Factoring: Identifying the benefits and risks when the factor takes on the credit risk of the receivables.
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Working Capital: Exploring how factoring enhances working capital, supporting day-to-day operations.
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Factoring Accounts Receivable: Summarizing the pros and cons of factoring accounts receivable, including how it provides immediate funding and facilitates business growth.
CONCLUSION
If you’re looking to maximize the benefits of the right receivables factoring solution and want to achieve the benefits of factoring, call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you with your working capital needs. If you’re a small or medium-sized business in Canada and want to get started immediately on the factor receivables process, call us!
When considering receivables financing/factoring vs other financing options like a business line of credit or accounts receivable financing, it's essential to understand the differences in terms of advance rates, interest rates, and exposure duration.
FAQ
What is factoring of receivables?
Factoring of receivables is a financial transaction where a business sells its accounts receivable to a factoring company at a discount for immediate cash.
How does invoice factoring benefit small businesses?
Invoice factoring via a financing company provides immediate cash flow, helping businesses manage expenses, pay suppliers, and invest in growth opportunities.
What types of businesses can use factoring of receivables?
Factoring of receivables is suitable for businesses of all sizes across various industries that have outstanding invoices.
What is the difference between recourse and non-recourse factoring?
Recourse factoring means the business must buy back any unpaid invoices. In non-recourse factoring, the factoring company assumes the credit risk of the receivables on the company's balance sheet.
How do factoring fees work?
Factoring fees are typically a percentage of the invoice value and may vary based on the creditworthiness of the receivables and the factoring company’s policies.
Can factoring of receivables help businesses with poor credit?
Yes, factoring relies on the creditworthiness of the customers who owe the invoices, not the business selling the receivables.
What are the typical terms of an accounts receivable financing agreement?
Terms can vary but generally include the advance rate, fees, and the duration for which the factor holds the accounts receivables before full payment.
Is factoring of receivables considered a loan?
No, factoring from accounts receivable factoring companies is not a loan. It is the sale of receivables at a discount for immediate cash.
How does factoring improve cash flow management?
Accounts receivable factoring works by providing immediate cash, which can be used to cover operating expenses, pay suppliers, and invest in growth, thereby improving overall cash flow management.
What are the risks associated with factoring of Accounts Receivable AR ?
Risks associated with using accounts receivable financing companies / factoring companies include potentially high fees around the accounts receivable factoring cost, reliance on customers' creditworthiness, and the impact on customer relationships due to the involvement of a third party.
How does non-recourse factoring protect my business?
Non-recourse factoring from an accounts receivable factoring company protects your business from the risk of customer non-payment, as the factoring company assumes the credit risk in receivable loans.
