YOUR COMPANY IS LOOKING FOR BUSINESS RECEIVABLE FINANCE!
ACCOUNTS RECEIVABLE FINANCING - YOUR FACTORING COMPANY SOLUTION
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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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EMAIL - sprokop@7parkavenuefinancial.com
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South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Receivable credit solutions don't always come from the bank. Any business selling on credit, large or small, soon feels somewhat ' tied up ‘ when it comes to receivables finance of your sales revenues. Those goods and services you've delivered require payment, and the ability to finance trade receivables is critical. Let's dig in.
For business owners, it's fundamental to understand that the assets on your balance sheet equivalent to receivables represent future cash flow - while accounts consider a/r as current assets that can be liquidated within a year it's safe to say business owners would prefer 30 days or less!
DOES BANK FINANCING MEET ALL YOUR BUSINESS FUNDING NEEDS
If a Canadian chartered bank or business credit union can't supply the financing you need, is there an alternative? You knew there was, and it’s the financing of your accounts receivable through an independent commercial finance company. The problem? Which of their multiple solutions works for you... is one better than the other, and can the costs of such financing be managed properly or reduced? A bank line of credit secured by receivables has your receivables assigned to the bank in case of business failure - that ' assignment process ' is the key differentiator in factoring versus bank lines.
WHAT IS FACTORING? HOW DOES FACTORING WORK?
While the ' street terminology ' refers to this method of financing as ' FACTORING, 'there are, in reality, several subsets of this type of commercial finance. Choosing the right method of factoring accounts receivable is one key to funding success,
Haven’t had someone fully or clearly explain how accounts receivable Finance works? You've just received your clearance for a full explanation! --> Based on an upfront financing security agreement being signed, you can draw down typically up to 90% of the value of your total receivables that are under 90 days old. By the way, the banks typically allow you to draw down only 75% of A/R, so one immediate observation is that you just managed to negotiate more liquidity/cash flow for your business,
WHAT IS A HOLDBACK IN FACTORING?
The balance of 10% is in effect a ' holdback' of sorts, and when your client pays, you received that 10% back immediately, less a financing cost in the 1.25 - 2% range. So using a 10k invoice as an example, your financing cost would be 125 .00 - 200.00 $. Naturally, the costs are geared toward your client paying promptly in 30 days, which are very typical commercial trade receivable credit terms...
TWO KEY POINTS IN UNDERSTANDING A/R FINANCING
Two critical points come to bear here:
1. You can reduce financing costs by focusing harder than ever on your management of receivables - That includes:
Considering advance/down payments in some form
Invoice clients the day you deliver your product or service.
Offering prompt pay discounts
Improving collection procedures and invoicing clearly and properly
AN EXAMPLE OF RECEIVABLE FACTORING - ADDRESSING THE PROS AND CONS OF COST
Key point – any time your clients pay over 30 days increases financing costs, and that includes higher financing costs or simply the higher cost of carrying unpaid receivables - Example... The carrying cost on $10,000 paid in 66 days at 14% interest rate would be: $10,000 x .014 / 365 x 66 = $253.00
2. Only draw down on your ' factoring’ facility when you need it
Ensure you have a facility that doesn't require you to finance all your accounts receivable all the time - if that’s the case, you're dealing with the wrong firm
WHAT IS THE BEST FACTORING SOLUTION?
Focus on the benefits of a CONFIDENTIAL RECEIVABLE FINANCING solution. This is our recommended solution for all our clients, as it allows you to bill and collect your sales without the ' notification' required by traditional factoring services. Financing receivables accounting is not complex at all.
Use your receivable credit facility to reduce overall financing costs - this includes taking prompt pay discounts with your own suppliers, as well as negotiating better prices with suppliers for goods you can pay for on delivery
CONCLUSION - FINANCING RECEIVABLES
Looking to understand more about the different types of factoring and getting a solid overview of this method of business funding? If you're focused on achieving the best method of short term balance sheet financing to fund your trade receivables / outstanding invoices for working capital success, seek out and speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor with a track record of success in Receivable Credit solutions.
Click here for the business finance track record of 7 Park Avenue Financial
Stan Prokop
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