Factoring Financing in Canada: A Business Cash Flow Solution

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Read on because you'll uncover the ins and outs of factoring financing in Canada, and how it can transform your business cash flow.

FACTORING FINANCING IN CANADA

That's why you're here. You've got sales and we know how to finance them - including the absolute best method of 'factoring' - Confidential Receivable Finance. Let's dig in.

Working Capital and Cash Flow Challenges

There isn't a day these days when we don't meet a client like you who isn't challenged by working capital and cash flow challenges.

The Basics of Factoring Financing

So the key basics of factoring financing in Canada, - what you need to know, which is simply:

How does it work?

What does it cost?

What's the best way of doing this?

Growing Sales and Financing Needs

The good news, your sales are growing. Your clients, as great as they are, are slow to pay. And we won't forget that terrible thing known as 'the bulge', which is that seasonal or occasional situation when large sales opportunities loom and you need financing to cover those off. A great problem to have, if you can solve it!

Thousands of Canadian companies can't all be wrong, so there must be something to factoring financing of those invoices, right? We're going one step better and recommending that you investigate confidential invoice financing, which is simply a factor arrangement that has you in control of the show, not the finance firm. And controlling your own destiny is what it is all about.

How A/R Finance Works

A/R finance is simply the factoring of accounts receivable via the sale of your invoices to your finance partner firm - you get the cash immediately. It works best when you have some decent gross margins to absorb the 1- 1.5% financing cost and factoring fees that come along with this accounts receivables funding.

Concerns about Costs

The cost via factoring companies is what most of our clients are worried about when they consider accounts receivable financing of outstanding invoices - and they are somewhat happier when we show them how they have the ability to cut the accounts receivable financing cost in half using that newfound cash flow to execute on strategies such as taking discounts with their suppliers and buying in bulk at better prices.

The Secret of Confidential Receivable Financing / Confidential Invoice Discounting

So here comes the recommended secret we are talking about. We call it C I D receivable factoring, which stands for confidential invoice discounting. Here's where you have an advantage over your competitors. 99% of all factor financing in Canada revolves around your factor firm partner billing and collecting your invoices, with notice to your customer.

Benefits of Confidential Receivable Financing

The Confidential Receivable Financing Company offering? When factoring receivables/ unpaid invoices using Confidential a/r financing you bill and collect your own invoices when you want, when you need the cash. So you have the same pricing as your competitors, but you are up on how the facility works.

Factors to Consider in Financing

Things we look out for when we originate these financings are areas such as the total all-in rate of your new financing facility. Other somewhat technical issues are the advance rate, of what is advanced against the full amount of your invoices.

Additional Key Issues

Some other key issues to look for are the miscellaneous admin fees, the exact calculation of your new financing partner uses for their rate, and your ability to terminate the arrangement at no cost. That's important - you never want to be 'locked in’.

Key Takeaways

Factoring Financing, or A/R finance, is the sale of your invoices to a finance partner firm. By selling your invoices, you receive the cash immediately instead of waiting for clients to pay.

The Core Problem it Solves:

Businesses face challenges in maintaining cash flow, especially when clients are slow to pay. Factoring allows businesses to access immediate capital without waiting for invoice settlements. This is especially crucial when there are large sales opportunities or seasonal demands.

Confidential Invoice Discounting (C I D):

This is a subtype of factoring where businesses maintain control over the billing and collection of their invoices. Instead of the finance firm interacting with the client, the business does so, making the financing aspect confidential. This means your customers don't necessarily know you're using a finance firm, which can be beneficial for business relationships.

Costs and Benefits:

The Receivable factoring cost associated with factoring typically comes to around .75-1.5% of the invoice value. However, with the immediate cash flow, businesses can leverage early payment discounts with suppliers or buy in bulk at better prices, which can offset these costs.

Selecting a Factoring Partner:

It's essential to understand the total all-in rate, advance rate, any miscellaneous admin fees, and the calculation methods of your financing company partner. Also, businesses should ensure they aren't 'locked in’ and have flexibility in the factoring agreement when factoring accounts receivable.

Conclusion

Some of these latter issues we mentioned can save you thousands and tens of thousands of dollars a year - Call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor to ensure you have the best method of factoring financing for your firm.

FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION

What exactly is factoring financing?

Factoring Financing, or A/R finance, involves the sale of your invoices to a finance partner firm. Instead of waiting for clients to pay, you receive the cash immediately.

How can factoring help businesses with cash flow challenges?

Factoring provides businesses immediate access to capital. Especially when clients are slow to pay or during seasonal demands when there's an influx of sales opportunities, factoring ensures a continuous cash flow.

What is Confidential Invoice Discounting (C I D) and how is it different?

C I D is a subtype of factoring where businesses maintain control over the billing and collection of their invoices. The business interacts with the client directly, keeping the financing aspect confidential, so clients are unaware of the financing arrangement.

Are there any costs associated with factoring financing?

Yes, the cost associated with the factoring fee is typically around 1-1.5% of the invoice value. However, with immediate access to cash, businesses can often offset these costs by leveraging early payment discounts with suppliers or buying in bulk at better prices.

Are there different types of factoring, and if so, what are they?

Yes, there are primarily two types: recourse and non-recourse factoring. In recourse factoring, if the client doesn't pay the invoice, the business is responsible for the amount. In non-recourse factoring, the risk of client non-payment is borne by the factoring company.

Can any business use factoring financing, or is it industry-specific?

While invoice factoring is popular in industries like manufacturing, transportation, and textiles, any business with invoices from creditworthy commercial clients can typically utilize factoring. Accounts receivable factoring works for any business that has viable commercial receivables.

What's the difference between factoring and a traditional bank loan?

Unlike a traditional bank loan where debt is added to your balance sheet, factoring is the sale of assets (invoices), so it doesn't create debt. It is in effect a line of credit which monetizes business assets, namely A/R! Factoring decisions are based on the creditworthiness of your clients, not your business credit.

Are there minimum or maximum amounts for which invoices can be factored?

This largely depends on the factoring company. Some companies have no minimums, while others require a certain amount. Maximums also vary, with some firms able to handle large multi-million dollar invoices.

Does the factoring company interact with my clients directly?

In traditional factoring, the accounts receivable factoring company may interact directly with your clients. However, with options like Confidential Invoice Discounting (C I D), you maintain control over the billing and collection, keeping the financing aspect discreet.

' 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

Understanding Factoring Financing in Canada: A Comprehensive Guide | 7 Park Avenue Financial