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ACCESS TO CASH VIA ACCOUNTS RECEIVABLE FINANCING IN CANADA
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Financing & Cash flow are the biggest issues facing business today
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Accounts receivable funding companies transform outstanding invoices into immediate cash flow, providing a vital financing solution for businesses.
Unlock instant cash flow with accounts receivable funding companies and grow your business without the wait.
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer Accounts Receivable Funding & solutions that solve the issue of cash flow and working capital – Save time and focus on profits and business opportunities
7 Park Avenue Financial: “Canadian Business Financing with the intelligent use of experience”
Accounts Receivable Funding : Financing Solutions for Your Business
Receivable funding in Canada is also known as accounts receivable factoring.
While A/R business financing may perhaps not be the all-time greatest invention ever in business, it certainly ranks up there. But when it comes to short-term working capital and the finance of receivables, or even just its management, are there some ‘HIGH NOON’ issues you need to both know and keep at the top of your mind? We think so. Let’s dig in!
ACCOUNTS RECEIVABLE FUNDING - YOUR KEY TO FINANCIAL STABILITY
Accounts receivable financing companies provide your businesses with an efficient solution to cash flow challenges by converting unpaid invoices into immediate working capital.
When selecting accounts receivable financing companies, it is essential to consider factors such as payment collection, large loan amounts, competitive rates, flexible repayment terms, high advance rates, quick funding speeds, customer service, and the focus on the customer's ability to pay outstanding invoices.
These companies offer a cash flow lifeline to firms struggling with liquidity, enabling them to manage operational expenses, invest in growth opportunities, and maintain financial stability without the need to make a major investment in carrying receivables, which can create negative cash flow situations notwithstanding your sales and profits are growing!
By partnering with accounts receivable funding companies, businesses can maintain steady cash flow and focus on their core activities without the stress of delayed payments.
WHAT IS A/R FINANCE / ACCOUNTS RECEIVABLE FINANCING
The essence of A/R finance couldn’t be more straightforward. It’s simply a bridge to allow you to receive cash/working capital before payment from clients on your outstanding invoices.
An accounts receivable loan provides financial flexibility and advanced working capital based on your unpaid invoices, allowing you to invest in growth and navigate through different business stages.
The accounting world allows you to classify this as a ‘current asset’, meaning you must collect it within a year. Unfortunately, this is the same timeframe that your clients seem hell-bent on paying you in!! Financing the balance sheet allows you to unlock your cash flows.
REVENUE RECOGNITION = CASH FLOW
Revenue recognition is a key factor to consider when financing your accounts, whether with your banker or your commercial finance firm.
Accounts receivable financing rates can vary based on factors such as your customer's creditworthiness, the volume of receivables, and the terms of the sale.
You must remember that you must be able to clearly demonstrate that the product or service you have delivered is, in fact, ‘recognized’ and that there is an assurance that the customer has an obligation to pay you.
Selling on consignment or on a contract-type basis with milestone payments presents real problems when it comes to financing your accounts receivable.
CONTRACTS AND PROGRESS PAYMENTS CAN BE FINANCED ALSO
We do work with many businesses that sell on a ‘ contract ‘ type basis, and we would add that if the milestones are clearly defined.
Invoice financing can provide additional working capital by advancing funds on unpaid invoices. And you’ve delivered on your commitment to the client, so you are still in a position to finance AR.
QUICK EXAMPLE OF HOW A/R RECEIVABLE FINANCING WORKS
Receivable financing has quickly become one of the most popular methods of business finance.
Receivable factoring, or invoice financing, involves a detailed process including application, due diligence, agreement terms, invoice submission, funding, collection, payment settlement, and ongoing management. It offers numerous benefits, such as immediate cash flow and reduced credit risk.
Using a 10k invoice as an example, the Canadian business owner/manager receives approximately 9.8k immediately on invoicing, with the 200 dollars considered a discounting or carrying charge.
It’s as simple as that if you’re dealing with the right party. Business owners can view their factoring facility as a line of credit.
UNDERSTANDING THE CASH DISCOUNT CONCEPT
Whether you finance your A/R or don’t, the issue of cash discounts is important.
Receivable financing rates can significantly impact the cost of financing, as they may vary based on factors such as the advance rate required, the level of risk, and the size of the facility. They are not a reduction of your price offered to your clients; they are simply an incentive for the client to pay you earlier.
If you are financing your A/R a considerable amount, if not all of the cost of financing your business, it can be reduced by using cash flow from AR financing to take discounts with your key suppliers. Small businesses should always be focused on supplier/vendor relationships.
ELIMINATING THE WAIT IN COLLECTING YOUR RECEIVABLES
Understandably (because it’s a cruel world), many of your clients will try and take as long to pay as possible. Major corporations in Canada use their size and buying power clout to their advantage by paying smaller firms in either 60 to 90 days.
That enhances their cash flow in a big way. Various business loan options such as term loans, credit lines, Government SBL loans, equipment financing, and invoice factoring can help address different business needs and improve cash flow.
Financing your A/R via a bank facility or a commercial invoice discounting facility allows you to fight that battle. If you have priced your products and services with that delay in mind, you’ll be a strong competitor in your marketplace and industry.
KEY TAKEAWAYS
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Invoice factoring: This concept involves selling invoices to a factoring company at a discount for immediate cash.
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Receivables financing refers to using accounts receivable as collateral to secure funding.
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Cash flow management: Effective management of cash inflows and outflows to maintain liquidity.
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Accounts receivable loans: Loans provided against the value of outstanding invoices.
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Factoring companies: Firms specializing in purchasing and managing accounts receivable.
CONCLUSION
Financing accounts receivable doesn’t have to be challenging for small business owners.
These are some key issues that affect the management and financing of accounts receivables on your company’s balance sheet.
We will cover others in the future, but for now, seek the advice and services of 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor who can assist you with your business funding needs.
Selecting the proper accounts receivable financing companies is crucial, considering factors like payment collection, large loan amounts, low rates, and quick funding speeds.
You’ll then be a formidable competitor when HIGH NOON rolls around when you have the 7 Park Avenue Financial factoring company solution.
FAQ
How do accounts receivable funding companies work?
They purchase your unpaid invoices at a discount, providing immediate cash to your business. This allows you to maintain a steady cash flow without waiting for customers to pay.
What are the benefits of using accounts receivable funding?
The main benefits include improved cash flow, no need for additional debt, quick access to working capital, and reduced collection efforts.
Is accounts receivable funding suitable for small businesses?
Yes, it is especially beneficial for small businesses facing cash flow challenges, as it provides immediate access to funds without taking on additional debt.
How does accounts receivable funding affect customer relationships?
It generally does not impact customer relationships. The funding company typically handles collections professionally, ensuring your customers are treated respectfully.
What industries can benefit from accounts receivable funding?
Accounts receivable funding can benefit industries such as manufacturing, transportation, staffing, and any business that extends credit terms to customers.
What is the difference between accounts receivable financing and accounts receivable factoring?
Accounts receivable financing involves using outstanding invoices as collateral to receive a loan from a financial institution, while accounts receivable factoring involves selling those invoices to a factoring company. In accounts receivable financing, the business retains control over its invoices and customer payments. In accounts receivable factoring, the factoring company takes over the collection process and directly interacts with the customers.
How is accounts receivable funding different from a traditional loan?
Accounts receivable funding is not a loan; it’s an advance on your invoices. Invoice financing, also known as accounts receivable financing or factoring, involves a lender providing an advance on the business' unpaid invoices to eligible customers, offering additional working capital and improving cash flow. You receive cash immediately without creating debt on your balance sheet.
Can accounts receivable funding help improve my credit score?
Using accounts receivable funding responsibly can improve your business’s cash flow, help you meet other financial obligations on time, and potentially improve your credit score.
What happens if a customer does not pay their invoice?
If a customer does not pay, the terms of the agreement with the funding company will determine the next steps. Some companies offer non-recourse factoring, where they assume the risk of non-payment.
How can accounts receivable funding improve my business cash flow?
Accounts receivable funding provides immediate access to cash tied up in unpaid invoices, allowing businesses to manage expenses and invest in growth. Additionally, a business loan can offer various financing options, such as term loans, credit lines, Government-Guaranteed SBL loans, equipment financing, and invoice factoring, helping businesses find the best type of financing suited for their needs.
What are the eligibility requirements for accounts receivable funding?
Eligibility requirements vary by provider but generally include having B2B invoices and a stable customer base. Businesses should have creditworthy clients for better terms.
How quickly can I get funded through accounts receivable funding?
Funding through accounts receivable financing can be speedy, often within 24 to 48 hours after submitting your invoices.
