Factoring Finance Companies: Maximizing Cash Flow for Business Growth | 7 Park Avenue Financial

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YOUR COMPANY IS LOOKING FOR FACTORING RECEIVABLES FINANCING

ACCOUNTS RECEIVABLE FACTORING SOLUTIONS IN CANADA - HOW THE INVOICE FACTORING INDUSTRY  WORKS!

AND FACTORING COMPANIES THAT DON’T CHARGE INTEREST! 

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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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Struggling to secure traditional business loans?

Factoring finance companies offer a viable alternative, helping businesses access much-needed capital without the hassle of stringent credit checks or lengthy approval processes.

7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer  FACTORING FINANCE   solutions that solve the issue of cash flow and working capital  – Save time and focus on profits and business opportunities

  
WHY CONSIDER THE RECEIVABLES FINANCING SOLUTION?

INTRODUCTION

More and more Canadian business owners and financial managers are considering factoring as a viable alternative financing solution. Everyone seems to tell you that   ‘factoring is expensive.' If that’s the case, why would you want to choose a receivables loan as a financing solution? Even more so, is it even remotely possible to achieve interest-free factoring or factoring receivables at zero cost?  Let’s show you why that premise is defensible, and we will let you decide.

 Factoring finance companies provide a valuable service for businesses seeking to optimize their cash flow and working capital. This is often a lifeline for companies navigating cash crunches or aiming to fund growth.

WHAT IS FACTORING RECEIVABLES?

Factoring receivables is a process by which companies finance accounts receivables for cash flow and working capital purposes. A firm receives an initial advance on a receivable, typically in the 80-90% range - representing a  sale of the receivable to the factoring company. When the client pays the invoices, the company receives the balance of the funds less a factoring fee. Any business selling on credit to other businesses can qualify for factoring.




If you are a small or medium-sized business, you know the true value of financial serenity when you have positive working capital and cash flow.  Cash flow is great. If you have positive working capital, that means that you have a major investment in accounts receivable and inventory.


That isn’t necessarily great, especially if your balance sheet accounts such as receivables aren’t turning over every 30 days. Does any third party ever pay the invoice amount in 30 days anymore?


We don’t think so,  as slow-paying seems to be the norm, that’s for sure - that's when invoice factoring makes sense for business cash needs -  factoring allows you to focus on the sale of your goods or services.




When your firm can more efficiently use cash flow generated from accounts receivable, you have an easier ability to grow your business. In fact, as a business owner, you quickly realize that the single largest asset on your books is often accounts receivables.


It takes easily one, often two, and sometimes 3 months to collect the average receivable in the current economic environment. When you delay payments to suppliers, you are increasing your cash flow from operations; when you grant credit to your customers, you are decreasing that same cash flow – it’s a daily battle that plays out every day.


Factoring or receivable financing allows you to collect and immediately invest those funds back into your business.

EXAMPLE OF A FACTORING COST / FACTORING FEES & THE  FACTORING DISCOUNT  ( INVOICE FACTORING RATES ARE NOT EXPRESSED AS AN INTEREST RATE!)

A quick example offered by a firm called the Receivables Exchange (U.S.-based) is as follows – It's a solid example of increasing cash flow.


Let’s say your firm earns 20% on the money it invests in itself, therefore in 44 days. Your firm can earn a 2.2% return.


Now let’s get to the root of our premise. Factoring companies don’t charge ‘interest' per se because you are not borrowing funds. You are simply monetizing your receivables at a discount for immediate cash today. Let’s use a typical factoring discount rate of 2%, which is certainly not uncommon. That’s a 30-day rate. There is better pricing, and there is higher pricing.


But look at what we are saying – if you can immediately, on the same day you generate an invoice, get cash, reinvest in your business, and earn a profit (we will use our example of 2.2% return in 44 days), haven’t you in effect achieved zero interest charges on your working capital financing. Bottom line? Receivables factoring works!


Let’s make a more clear and dramatic point – Use our example again of a 2% discount fee for 30 days.  What if your receivables for the month were $300,000, and you were factoring them at our 2% discount rate? If you have immediate cash for that $300,000.00, do you think you could pay major suppliers immediately and subtract 2% for their stated net 30-day payment terms?

By the way, it's important to understand the advance rate on financing invoices is in the 80-90% range, typically quite higher than the bank allows.


Also, do you think you could meet with your major and valued suppliers, advise them you were in a position to pay cash based on getting better pricing, and would they accept!  We hear the saying ‘cash is king' every day in business – after the 2008 economic meltdown, cash ruled supreme. And let's not even talk about business disruption in the 2020 Covid epidemic.


By offering to pay your suppliers more promptly and buy in greater quantities, we have had many clients tell us they have achieved as much as a 5% saving in some cases. And let us not forgot about pandemics!

BENEFITS OF UNDERSTANDING FACTORING RECEIVABLES FINANCE FOR SMALL BUSINESS IN CANADA

Let’s recap the premise of our information. It’s simpler than it may sound:


**Factoring offers you immediate working capital and purchases your invoices at a discount – it is incorrect to view these funds as a loan or an interest rate per annum.


**If you got the typical fee of 1-2% as a discount charged on factoring by your factoring company on the invoice amount and had unlimited cash flow and working capital, could you purchase more effectively and pay suppliers more promptly, taking a discount all along the way. Yes, we believe you could.


Companies can choose between non recourse factoring or factoring with recourse, depending on the amount of normal bad debt risk they wish to carry - that can be addressed in the factoring agreement.


Does accounts receivable financing make sense for your business? You will never get a letter from a factoring firm that states you are being charged no finance charges – but we have effectively shown that the cost of that financing, i.e. the  ' factoring fee, 'balanced against carrying your customers and being able to take supplier discounts and purchase more effectively, can add thousands of dollars to your bottom line.

And at the same time, you have removed the business person of the greatest worry – lack of working capital for small businesses that carry outstanding invoices. When your client pays your invoice, factoring's immediate cash benefits allow you to fund day-to-day operations.


 

 KEY TAKEAWAYS   

  
CONCLUSION  

Call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you with your business funding needs in all aspects of your business, including invoice finance and invoice factoring loans for your cash flow needs.

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