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Financing & Cash flow are the biggest issues facing business today
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"Invoice discount facilities offer a crucial lifeline for businesses navigating cash flow challenges, providing a strategic avenue to unlock capital tied up in outstanding invoices."
Attention Grabber: "Struggling with fluctuating cash flow? Discover how an invoice discount facility can stabilize your business finances today."
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer Invoice Discount Facilities & 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”
Understanding The Invoice Discount Facility in Canada
'Misunderstanding all you see' is a line from the Beatles 'Strawberry Fields, and it seems appropriate given the confusion around receivable financing and invoice discounting rates in Canada.
How Does Invoice Discounting Work?
So, talk about confusing. Let’s try to clarify some real basics around receivable finance in Canada—mostly how it works and is priced.
The invoice discounting process involves sending out invoices, receiving a percentage of each invoice, and handling payments. Clients always provide their version of what they think they are getting, but the reality is often far from that.
Purpose of Accounts Receivable Finance
Thousands of firms in Canada use A/R finance via an invoice discounting company to address cash flow shortages when more traditional financing simply doesn’t make sense or cannot be attained.
Clarifying Invoice Discounting
A good way to clear up some of the confusion around this method of business finance in Canada is to address it head-on, simply to say that this finance mechanism isn’t financing per se.
It’s simply the sale of one of your assets at a discounted rate.
Confidential invoice discounting helps maintain confidentiality by ensuring customers are unaware of an invoice discounting company's involvement. So, from that perspective, we admit to sometimes being guilty about the terminology!
Factors Influencing Invoice Discounting Rates
Another way of looking at our issue is to frankly address what might be perceived or real drawbacks or negatives around A/R financing. In Canada, the discount rate used on receivables when selling them ranges from 1-1.5%.
The invoice value significantly affects these discount rates, as higher invoice values often result in lower discount rates due to reduced risk. The average discount rate occasionally tends to be in the 2% range.
Strategic Use of Invoice Discounting for Cash Flow
Invoice discounting rates make the most sense when used to take advantage of opportunities for growth and higher profits and sales through asset turnover.
An invoice discounting service can provide quick payment, improved cash flow, and a cost-effective alternative to bank loans. This leads to a predictable revenue stream and enables various ways to utilize the obtained funds for business growth and stability.
Challenges and Considerations
Part of the reason A/R finance is viewed as confusing by many is that it’s essentially part of an unregulated industry.
It's crucial to compare different invoice discounting companies, understand their fees and services, and seek references before deciding. Our banks are regulated, and you know what you get (when you can get it!)
Benefits and Cost Considerations
So, what does that all mean to Canadian business owners and financial managers? Simply four words: Pick a solid partner or advisor.
Addressing Pricing and Benefits
Where invoice discount financing gets confusing is in the terms/contracts and the rates. Fees are deducted from the remaining balance before remitting it to the lender.
So, how do you address that pricing in terms of benefits? Several factors have to be considered.
They are the quality and age of your receivable portfolio, the ‘opportunity cost’ of what you can do with additional cash flow, and the actual cost of carrying your receivables and inventory instead of monetizing them.
Practical Advice for Business Owners On The Invoice Discounting Facility Solution
A quick example: If your annual sales are 1.2 million and your daily sales are $3300 per day, a 3-day reduction in DSO could add $10,000 to cash flow. A 30-day reduction adds 100k to the cash flow!
Key Takeaways
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Invoice Financing: Immediate cash for invoices.
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Accounts Receivable Finance: Using invoice finance for cash flow.
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Cash Flow Management: Enhancing liquidity.
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Invoice Factoring: Selling invoices for working capital.
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Working Capital Solutions: Addressing short-term financial needs.
Conclusion
Confusing? We hope not, although we're the first to admit it takes some time.
Call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor, for clarity on how to achieve your firm's best invoice discounting facility rates and benefits. Let our team show you the benefits of invoice discounting as a cash-flow solution.
FAQ
How can invoice discounting help my business?
Invoice discounting allows you to access cash tied up in unpaid invoices, improving liquidity and supporting growth.
What are the advantages of using an invoice discount facility?
It offers immediate cash flow, reduces administrative burdens, and enhances financial flexibility.
Is invoice discounting suitable for small businesses?
Yes, small businesses can benefit by accelerating cash flow without additional debt.
How do I qualify for an invoice discount facility?
Typically, you need a stable invoice history and creditworthy customers to qualify for this financing.
What are the costs associated with invoice discounting?
Costs vary but generally include a discount fee based on the invoice amount and the time until payment.
What are the risks of invoice discounting?
Risks include customer disputes, non-payment issues, and potential impact on customer relationships.
How does invoice discounting differ from traditional loans?
Unlike loans, invoice discounting uses invoices as collateral, making it more accessible for businesses with strong sales but uneven cash flow.
Can invoice discounting affect my credit rating?
No, invoice discounting typically doesn't impact your credit rating because it's not considered a loan.
How do I choose the correct invoice discounting provider?
Select a provider with experience in your industry, transparent terms, and competitive rates.
What happens if my customer doesn't pay the invoice?
Depending on the agreement, you may need to buy back the invoice, or the provider may assume the risk.
How quickly can I access funds through invoice discounting?
Funding timelines vary but can be as quick as 24-48 hours after approval, depending on the provider and your circumstances.
