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Discover the game-changing factoring solution that can transform your business's financial landscape
Have you ever wondered how some businesses seem to effortlessly overcome cash flow challenges while others struggle to stay afloat? What if we told you there's a financial strategy that can make all the difference?
Better Financing for Accounts Receivable in Canada
Introduction
Surpassing a restriction - that’s how a breakthrough is defined, and we're sharing info on how financing accounts receivable and achieving the best invoice factoring in Canada just got a whole lot better!
The age-old adage "cash is king" holds truer than ever. For companies of all sizes and industries, maintaining a healthy cash flow is not just a financial strategy; it's the lifeblood that fuels growth, and innovation.
Financing Accounts Receivable and Best Factoring Solutions—a dynamic, sophisticated approach that has become a lifeline for businesses worldwide.
Imagine this scenario: You're a business owner, and your company is thriving. You've secured a roster of loyal clients who appreciate your products or services, and your order book is overflowing. Yet, there's a crucial dilemma lurking beneath the surface. While your sales figures soar, your cash flow is tied up in unpaid invoices, slowing down your operations and restricting your ability to seize new opportunities.
The Shift in Canadian Business Landscape
Thousands of small and medium-sized businesses in Canada (and by the way, a number of larger corporations also!) have moved towards an independent non-bank method of financing accounts receivable in the Canadian business landscape.
Understanding The Benefits of Accounts Receivable Financing
| Benefit |
Description |
| 1. Instant Cash Flow Boost |
Unlock working capital from unpaid invoices fast. |
| 2. Accelerate Business Growth |
Fuel expansion and seize opportunities with ease. |
| 3. Say Goodbye to Cash Flow Worries |
Ensure consistent cash flow and banish financial stress. |
| 4. Access Capital Without Taking on Debt |
Finance your business without accumulating more loans. |
| 5. Focus on Core Operations |
Let us handle collections while you concentrate on growth. |
| 6. Eliminate Credit Risk |
Non-recourse factoring protects you from customer defaults. |
| 7. Tailored Solutions for Your Business Needs |
Customized financing options that align with your goals. |
| 8. Say Hello to Predictable Cash Flow |
Maintain steady cash flow with a structured approach. |
| 9. Streamline Your Accounts Receivable Process |
Simplify invoicing and collection for increased efficiency. |
| 10. Scale Your Business Effortlessly |
Expand your business without the burden of overdue invoices. |
Understanding Accounts Receivable Financing / What is Accounts Receivable Financing?
But is there a way in which you can achieve the breakthrough that we're referring to? First of all, let’s make sure we are all singing from the same hymn book so to speak... covering off the essence of this type of financing.
The Basics of Factoring
Simply speaking accounts receivable financing, aka 'factoring‘... ‘invoice discounting' is the sale of your receivables, as you generate them, for instant cash flow and working capital. In the majority of cases of this type of financing, you still assume the risk of the non-collection of receivables, but you're simply monetizing or cash-flowing that portfolio of A/R for quick access to cash.
Managing Accounts Receivable
Also of note is the fact that typically while you don't have to finance a receivable immediately as its generated, at the same time invoices over 90 days generally can't be financed as they are assumed as uncollectible. We are always encouraging clients to monitor their A/R ageings and schedules to ensure they have a maximum handle on accounts receivable status.
Why Choose Accounts Receivable Financing?
The Advantages
Clients ask why businesses choose this type of financing over traditional A/R finance such as bank lines of credit, etc.
That answer could not be simpler, it’s a case of getting capital and cash flow that you might otherwise not achieve through a bank, it’s quick, with the major benefit being that your facility grows as your sales grow. You do not have a preset limit per se. That’s a huge benefit.
Considerations & Potential Drawbacks
But let’s focus on some potential drawbacks to this type of finance - we've always thought it’s important to present a balanced view. One of those drawbacks is the perceived cost of the financing. Back to that word perceived in a moment. The whole issue of cost and pricing of A/R financing is one of two issues we are always spending time with clients on. The industry as a whole views the transaction as a discounted sale price, while customers incorrectly perceive that pricing as an annual percentage rate.
Understanding Financing Costs
On a day-to-day basis, as you finance your receivables, they are in effect 'purchased’... at a 'discount' to their face value. The discount rate on a 30-day receivable in Canada varies widely... that’s why it's important to work with an expert to achieve maximum best financing. That rate tends to be in the 1-1.5% range more often than not.
Addressing Perceptions
However... back to our word 'perception'. Most clients don’t understand there are numerous methods to offset that financing cost, in some cases in its entirety. It's a case of using new found cash flow to take supplier discounts, purchase more effectively, and take on new business that otherwise might not have been possible.
So, is the suspense killing you? Let's not forget the 'breakthrough' we talked about - which is what we have come to call 'C I D'. It is confidential invoice discounting, and it goes against the grain of all the U.S. and U.K. companies in Canada that offer this type of financing. It puts you in control, and that’s a good thing, right? You bill and collect your receivables, with no notification to your clients, suppliers, etc.
Key Takeaways
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Factoring Solutions: Factoring involves selling accounts receivable to a third party at a discount, and offering immediate funds.
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Cash Flow Management: Effective management of cash inflows and outflows is crucial for financial stability.
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Working Capital: This represents the funds available to cover day-to-day operational expenses and growth opportunities.
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Accounts Receivable Aging: Tracking the aging of receivables helps identify overdue payments and potential issues.
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Creditworthiness Assessment: Assessing customer creditworthiness helps mitigate risks associated with financing accounts receivable.
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Recourse vs. Non-Recourse Factoring: Understanding the difference between these two factoring options is essential for risk management.
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Invoice Verification: Accurate invoice verification ensures that only valid invoices are financed, reducing errors.
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Advance Rate: The percentage of the invoice value advanced by the factor is a critical factor in financing.
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Factoring Fees: Knowing the fees associated with factoring is crucial to evaluating the cost-effectiveness of this financing method.
Conclusion
Most clients balk at the use of financing accounts receivable via factoring solely because of the issue of notification to your clients, and we've just removed that issue. So that, coupled with the best invoice factoring pricing you can achieve makes this financing very attractive to firms that can’t achieve bank or traditional financing of their working capital.
Check out Confidential Receivable Financing / confidential invoice discounting... Call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor on how you can achieve the best invoice factoring and financing from a viewpoint of cost and confidentiality when considering receivables financing options.
FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION
What is accounts receivable financing?
Accounts receivable financing is a working capital financing business funding strategy where businesses use their unpaid invoices as collateral to secure immediate working capital. It helps improve cash flow and supports growth.
How does factoring work?
Factoring involves selling your accounts receivable to a third party (factor) at a discount for more effective cash flow management and cash generation. The factor provides you with an advance on the invoice amount, improving cash flow while they collect from your customers. The factoring company charges a ' factoring fee ' to fund the transaction. Borrowers should be mindful of hidden fees and misc administrative fees.
What are the benefits of financing accounts receivable for business invoice funding?
Financing accounts receivable via invoice factoring companies offer benefits like improved cash flow, faster access to funds, risk reduction, and the ability to focus on core business operations. Some factoring companies specialize in certain industries or market niches - for example, Cannabis factoring.
Is factoring suitable for my business?
Invoice factoring services are beneficial for businesses with outstanding invoices. It's particularly useful for small businesses, startups, and those looking to accelerate growth. Certain industries such as trucking companies and staffing firms are large users of this method of financing for cash and credit management services.
Talk to 7 Park Avenue Financial about how the best factoring company solutions can work for your home.
What's the difference between recourse and non-recourse factoring?
Recourse factoring with an invoice factoring company holds you responsible for unpaid invoices, while non-recourse factoring protects customer defaults. The choice depends on your risk tolerance and the cost of non-recourse factoring.
Are there alternatives to factoring in financing my business?
Yes, alternatives for factoring solutions via the best factoring companies include business loans, lines of credit, and invoice discounting, each with its advantages and disadvantages. Small business invoice financing is a solid solution for firms who can't achieve traditional bank loans/bank financing
How do I evaluate the creditworthiness of my customers?
Assess customer creditworthiness by reviewing their financial history, and payment patterns, checking trade references, and using credit reports such as Dun and Bradstreet or credit scoring systems. Most factoring companies can assist in the credit evaluation of new or existing companies.
Can I factor all types of invoices?
Factoring typically works for business-to-business (B2B) invoices, but it may not be suitable for business-to-consumer (B2C) transactions.
What is invoice verification in factoring?
Invoice verification is a process where the factor ensures the accuracy and authenticity of the invoices you submit for financing.
What fees should I expect with factoring?
Factoring fees may include discount fees (a percentage of the invoice value), service fees, and sometimes additional charges for credit protection.
Can factoring solutions help with international invoices?
Yes, some factoring companies offer international factoring services for accounts receivable financing, making it possible to achieve invoice financing from global clients.
