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Financing & Cash flow are the biggest issues facing business today
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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Direct Line = 416 319 5769
Email = sprokop@7parkavenuefinancial.com
Receivables AR financing in Canada comes with the perception of an ' Ouch ' when entering into this type of cash flow facility. But is perception reality in this case? We’re quite sure it isn’t, so let’s focus on the total ' receivable loan ' experience. (By the way, it’s not a loan; you're just cash flowing current assets). Let's dig in.
Whether a business is profitable or struggling back to profitability, the issue of liquidity and the ability to meet your obligations is always supreme. The ability to finance your sales via a receivable factoring solution is a solid tool when traditional bank financing can’t be achieved. But the type of facility you enter into, its cost, and how it works is really the ' ouch' factor you need to address to be successful with this type of financing.
While the bank paperwork on A/R financing is done through an ongoing ' assignment ' of your accounts, the receivable loan (again, it’s not a loan!) paperwork provides that you are, in fact,' selling ‘the receivables you wish to finance.
The biggest ' ouch ' for most clients is that as cheques are collected from your client, they are deposited directly into the lender's account, not yours, given you have received the benefit of the cash. Can this process be overcome? It sure can! And that comes via entering into a Confidential Receivable Finance facility that allows you to bill and collect your own accounts. By the way, whether it’s a Canadian chartered bank or your receivable factor firm, each of those has a ' lien' on your receivables. That's the collateral for the cash flow.
By the way, some of the largest companies in Canada or the world use these facilities. In some cases, a fancier name (‘Securitization ' ) is attached to the loan (it’s not a loan - have me mentioned that?!), but at the end of the day, it’s the same process - eliminating a/r from the balance sheet and generating cash at the same time.
Typically the same type of borrowing restrictions come with this type of financing - with one positive exception. Receivables factoring typically allows borrowing against 90% of your total A/R, while Canadian banks prefer a 75% borrowing base margin. (You’d think they were more conservative or something?!)
Otherwise, the following borrowing base has the same rules:
All North American receivables can be financed.
Receivables must be 90 days or less current.
If you are billing and collecting your accounts on 30-day terms, the cost to finance a $10,000 invoice, as an example, would be in the 200$ range. That 9800$ you receive when you generate a sale can be ploughed back into working capital needs, utilized for purchasing more inventory, or you can get back your 200$ by taking a discount with your own suppliers or arranging better pricing based on volume purchases.
Thousands of Canadian businesses utilize this financing as a ' bridge' back to traditional financial solutions. In fact, if your business is growing too quickly for traditional financing, it's often the best solution.
If you want to both remove the ' ouch ' from the receivable loan facility ( it's not a loan ..................) and wish to cover off more talking points on how this facility would work for your firm, seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your cash flow needs.
Stan Prokop
