YOUR COMPANY IS LOOKING FOR ACCOUNTS RECEIVABLE FINANCING!
Boost Your Business Growth with AR Financing Solutions
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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?
CONTACT US - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs
EMAIL - sprokop@7parkavenuefinancial.com
AR Financing for Business emerges as a cornerstone for SMEs seeking robust financial stability and growth in Canada's dynamic market landscape.
Unlock the secret to seamless cash flow: Discover how AR Financing propels businesses ahead, transforming invoices into instant capital.
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer AR FINANCING FOR BUSINESS solutions that solve the issue of generating positive cash flow for your business – Save time and focus on profits and business opportunities
Introduction - AR Financing for Business
No secret that Canadian business owners and financial managers in the SME (small/medium enterprise) sector in Canada are constantly seeking simple and effective business financing solutions in Canada. That's where AR financing comes in - its assistance for the constant need for cash flow.
The Search for Cash Flow Solutions
We don’t think we can count the number of clients we meet who always bemoan the lack of cash to run their business. And borrowing via some sort of term debt solution isn’t exactly what they consider a solution.
Enter ' FACTORING '. In the right circumstances (more about that later) its time efficient and not any sort of complicated approval process. The fundamental solution it provides is very simple - your clients owe you money but you would rather have that funding... today!
How Factoring Differs from Traditional Banking
Although conceptually its similar to a business bank line of credit the difference is that the documentation surrounding this Canadian business financing solution essentially has you selling those receivables, not just 'borrowing' against them, as you would with a chartered bank in Canada.
The Immediate Benefit of Receivable Financing
You get the funds immediately, basically, you’re able to cash flow the receivable as soon as you generate it and can document that you have delivered your product or service.
So how does the actual cash flow of the invoice work? Let’s take an example of a $50,000.00 invoice as an example! As soon as you have issued that invoice you receive cash for the invoice, less a discount, which is typically in the 2% range in Canada, sometimes more... sometimes less.
Our style is not to complicate things, but in actuality usually, an additional 10% is held back as a reserve or holdback. That money comes directly back to you when your client pays. So at the end of the day all you have in effect 'paid for' is the invoice discount, the previously mentioned 2% range.
Understanding A/R Financing
Key Questions About AR Financing
That seems very simple, but typical client questions are:
- Why does the discount or financing cost change or vary on an accounts receivable loan?
- Does the quality of my A/R portfolio affect pricing?
- What if my client doesn't exactly pay on time?
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Good questions... here are the answers:
Financing costs vary based on the type of firm you are dealing with and the size of your monthly receivables
. In general, your firm can attract better pricing with a higher quality customer base, but this is certainly never always the case. And finally, we haven’t really met anyone that 'pays on time' these days when cash is valuable. So the factoring industry addresses this by charging a daily ‘per diem’ rate based on what one additional day of the overall financing cost we have referred to.
How do you compare A/R Financing to Other Options?
Each financing option has its strengths and weaknesses, and the best choice depends on your business’s specific needs, financial health, and strategic goals. A/R Financing stands out for its quick access to capital, flexibility, and minimal impact on debt levels, making it an attractive option for businesses with strong sales but slow-paying customers.
A/R Financing vs. Traditional Bank Loans
Access and Speed: A/R Financing via accounts receivable factoring generally provides quicker access to funds because it's based on the value of your receivables, not your company's creditworthiness or history. Traditional bank loans require extensive documentation and approval processes.
Cost: The cost of A/R Financing can be higher than traditional loans because it's seen as less risky for the lender. Bank loans usually offer lower interest rates but require good credit scores and collateral.
Flexibility: A/R Financing offers more flexibility as it is tied to your sales and receivables volume, scaling with your business. Bank loans have fixed terms and repayment schedules. Impact on Balance Sheet: A/R Financing does not increase your company’s debt load as it's not a loan but the sale of an asset. Traditional loans increase your debt but also provide a predictable repayment schedule.
A/R Financing vs. Lines of Credit
Usage Flexibility: Lines of credit offer flexibility in usage; you can draw down and repay as needed up to the credit limit. A/R Financing is transactional, with each invoice financing acting as a separate transaction.
Cost: Interest rates for lines of credit can be lower than the fees for A/R Financing, but this often depends on the creditworthiness of the borrower. Availability: A/R Financing is often more accessible to businesses that may not qualify for a line of credit due to credit history or lack of collateral.
A/R Financing vs. Equity Financing
Ownership and Control: A/R Financing does not dilute ownership or control of your business, as it's not an exchange of equity for capital. Equity financing involves selling a portion of your business, potentially diluting control and future earnings. Repayment: A/R Financing is a self-liquidating form of financing, where the repayment comes from your clients paying their invoices. Equity financing does not require repayment, but investors expect a return on their investment, typically higher than the cost of debt financing.
A/R Financing vs. Merchant Cash Advances (MCA)
Cost: A/R Financing is generally cheaper than MCAs, which are known for high fees and daily repayment terms based on sales volume. Repayment Terms: A/R Financing's repayment is based on invoice payment cycles, which can provide more predictable cash flow management compared to the variable repayment structure of an MCA tied to daily sales.
A/R Financing vs. Factoring
While A/R Financing and Factoring are often used interchangeably, there can be a distinction:
Control of Receivables: With some forms of A/R Financing, such as a bank loan, you may maintain control over your receivables and collections process, whereas, with Factoring, the factor typically takes over collections of the company's accounts receivable.
Confidentiality: Some A/R Financing arrangements can be confidential, meaning your customers are not aware of the financing arrangement. Factoring is generally disclosed to your customers, as the factor will directly be collected from them.
Key Takeaways
- AR Financing Mechanism: Selling outstanding invoices at a discount to a financier who then collects directly from the clients.
- Benefits: Immediate cash flow improvement, no need for traditional collateral, and flexibility to finance based on clients' creditworthiness, not the company’s.
- Costs and Fees: Understanding the fees involved, including the discount rate and any additional charges, is crucial for cost-benefit analysis.
- Eligibility and Process: Knowing what makes a business eligible and the process involved helps businesses prepare for successful financing. Asset-based lenders can provide full financing facilities for receivables and inventory.
- Comparative Advantage: How AR Financing stands out against traditional loans or credit lines by offering quicker access to funds with less emphasis on the company's credit score.
Conclusion
So why is this form of financing effective? Simply speaking, it’s your new cash flow and working capital solution, allowing you to finance receivables and inventory and grow your business. It's no secret that cash flow runs every small business and every FINANCIAL POST 100 firm in Canada.
Factoring, aka ' RECEIVABLE FINANCING ', helps you smooth out the ups and downs of the business cycle... effectively.
Call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you with your business finance needs in accounts receivable financing options for business needs.
FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION
How does AR Financing benefit my business?
AR Financing via receivable factoring companies turns your accounts receivable into immediate cash, improving your cash flow and allowing for faster growth and operational flexibility.
What distinguishes Accounts Receivable AR Financing from traditional loans?
Unlike loans, AR Financing focuses on your client's creditworthiness, not yours, and provides quick access to capital without the need for collateral via cash flowing your accounts receivables.
Are there any industries that particularly benefit from AR Financing?
Industries with long invoice payment cycles, like manufacturing, wholesale, and services, can greatly benefit from the services of an accounts receivable financing company from the immediate cash flow provided by AR Financing via accounts receivable financing companies
How quickly can I access funds through AR Financing?
Funds can be accessible within 24 to 48 hours after submitting invoices for financing, making it a rapid solution for cash flow needs.
What are the typical costs associated with AR Financing?
Costs include a discount rate, generally around 1 - 1.5% % of the invoice value, and possibly additional fees, varying by the financing provider and the volume of receivables.
How do I choose the right AR Financing provider?
Consider their reputation, the flexibility of their terms, the speed of funding, and the transparency of their fee structure.
Can AR Financing affect my relationship with my clients?
When managed properly and with transparent communication, it should not negatively impact client relationships and can be seamless.
Is there a minimum or maximum amount for AR Financing?
Limits vary by provider, but typically, there's a wide range to accommodate different business sizes and needs.
Can I finance selected invoices, or do I have to finance all?
Many providers offer the flexibility to choose which invoices to finance, giving you control over your financing needs and costs.
How does accounts receivable financing work via the collection process associated with AR Financing?
The financier in the invoice factoring transaction typically takes over the collection process when traditional factoring is utilized but this can vary, so it's important to understand and agree on the process beforehand.
How is the discount rate for an invoice determined in AR Financing?
The discount rate from the factoring company is based on several factors, including the creditworthiness of your clients, the size of the invoice, and the length of the payment term. It reflects the cost of accessing capital earlier than the invoice due date.
What happens if my client fails to pay an invoice financed through AR Financing?
This depends on whether the financing agreement is with recourse or non-recourse when the customer pays.. or does not pay! With recourse via an accounts receivable finance company, you're responsible for unpaid invoices; without recourse, the financier absorbs the loss, usually at a higher cost to you.
Can AR Financing improve my company’s credit score?
Indirectly, yes. By improving cash flow and enabling timely payment of your obligations under receivable loans , AR Financing can contribute to a stronger financial profile, which can positively affect your credit score over time.
