YOUR COMPANY IS LOOKING FOR RECEIVABLES FINANCE!
REASONS WHY ACCOUNTS RECEIVABLE FINANCING FINALLY MAKES SENSE!
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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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Receivables Finance ! said the client. ‘Give me one good reason why .... ' We hear that one a lot, so we'll do one better and provide him or her with 8 solid business reasons to consider an account receivable service for your cash flow financing needs.
Accounts receivable financing is based on your ability to fund company growth objectives. The combination of accounts receivable and inventory financing is a key asset in your Canadian business financing toolkit. Here's your step-by-step guide to business capital success.
8 REASONS WHY RECEIVABLE FINANCING AND FACTORING WORKS!
Reason # 1 is simply growth... one of the ultimate ironies we have found in business financing is that many clients are punished for growing. Generally, of course, that's growing too fast, and traditional banking in Canada somewhat dislikes high growth when it comes to optimizing working capital. Receivables Financing Helps Your Company To Grow by creating an instant early payment option for your A/R investment!
But tell that to the entrepreneur who has been building his or her company or working forever on that major contract or sale. We have said it before, and we'll repeat it; a surefire method to generate positive cash flow immediately is to slow down sales and accelerate collections. You'll be flush with cash, but guess what, you won’t be growing, and that’s the dream of most entrepreneurs and business owners.
A/R finance likes, no, scratch that, loves! Growth. In fact, under most facilities, you will enter into this method of Canadian business financing; you are automatically approved for whatever level of financing you need, as long as you have the sales and qualified receivables to back up your request. When we speak of qualified receivables financing at 7 Park Avenue Financial we're referring to the fact that a/r must be under 90 days as well as your ability to demonstrate goods or services have been delivered.
Reason # 2 - the ability to purchase smarter and harder. With the cash on hand from your instant a/r collections via receivables finance factoring, you are in a position to negotiate better pricing with key suppliers, giving them at the same time the assurance you will pay. When it comes to factoring in account receivable needs, it's a clear case of Cash Is King. Accounts receivable financing companies deliver on that key metric in the success of your business.
Reason # 3 - This is a powerful but often overlooked one. It's simply your newfound ability to take prompt payment discounting, typically 2% off major purchases. That reduces the cost of an accounts receivable service significantly.
The cost of factoring should always be ' factored' into your financing decision when it comes to solving the working capital conundrum. Your receivables turnover ratio will determine your financing costs as your ability to collect a/r to your payment terms is key. Accounts receivable finance charges are widely misunderstood.
Here is an excellent overview from Freshbooks on how important that ratio is - Click here
Reason # 4 - Timing and speed. A solid invoice discounting A/R facility financing receivables finance agreement can usually be put in place within a week or two. Compare that to the time it takes to set up a bank facility with all the requirements imposed by Chartered banks in Canada, which by the way, also include profitability, personal guarantees, potential outside collateral, etc. Larger corporations use sophisticated receivables finance off-balance sheet funding via securitization.
Reason # 5 - This one is a bit tricky. Under traditional A/R finance in Canada, utilizing the popular U.S. model, the finance firm takes over all your collections; after all, they have purchased the receivable. That reduces collections costs and focus by the Canadian business owner.
That’s all good, but we'll point out that our favourite and, in fact, our recommended facility is confidential invoice financing, wherein you bill and collect your own receivables and sales. So, in this case, opting for our recommended solution would, in fact, not save you the burden of collections and customer interfacing. By achieving the benefits of selective invoice financing and managing your own facility you've turned your company into a cash flow machine!! In effect, it's ' undisclosed receivable finance '. Your competitors can mind their own business.
Reason # 6 - You're in control. In Canadian A/R finance, you are under no obligation to finance all your A/R, so you only pay for financing you use when you need it. That’s flexibility. Many bank facilities have standby and usage fees that kick in when the facility is not used. That’s not the case with Canadian accounts receivable service finance.
Reason # 7 - Customers who have liabilities with Canada Revenue for source deductions, H.S.T., etc. and in fact use their A/R advances to clear up these federal and onerous obligations. That's a good thing, as the taxman should be on your side, not at the door!
Finally, reason # 8. It's basically the concept of the bridge. View receivables finance as your temporary bridge to more traditional financing. A properly constructed facility should have little or no contractual obligations, allowing you to move on to another financing method that might come with a lower cost.
Accounts receivable inventory financing combinations are best managed via a non-bank asset-based line of credit which combines your key assets of a/r, inventory, and fixed assets to allow leveraging all of these into a business credit line.
RECEIVABLES FINANCING VS FACTORING: TWO TYPES OF RECEIVABLES FINANCING OPTIONS FOR YOUR BUSINESS NEEDS
Account Receivable Factoring is unlike commercial loans that come with carrying debt on your balance sheet and requirements in the areas of bank covenants and maintaining financial ratios acceptable, and in fact, required by a bank. The way receivable financing works is quite simple. The process of selling your receivables on an ongoing basis to a third-party factoring firm allows you to receive cash almost instantly on the receivables that have been pledged.
Receivables finance has numerous advantages for Canadian businesses looking to supplement their cash flow. First of all, it is viewed as quick and flexible compared to many other forms of financing such as commercial business loans and term working capital loans.
Your firm's ability to receive cash from clients via asset-based factoring of accounts receivable that have been paying anywhere from 30-90 days is key in the world of business survival. It is widespread for firms to receive funding the same day that they generate sales invoices.
CONCLUSION
There are numerous other reasons to consider A/R finance as a business financing strategy for Canadian business owners and financial managers.
WHAT ARE 5 ADVANTAGES OF A RECEIVABLE FINANCE SERVICE
Here are some of the benefits for your business:
1.The amount of financing available when factoring receivables is directly related to the amount of your sales and receivables
2.Approval decisions are made on sales volumes versus the overall financial viability and credit profile of your firm by financing companies
3.No debt comes on the balance sheet in an a/r financing facility when factoring invoices.
4.The additional cash flow derived from a factoring solution allows owners not to consider an additional equity infusion.
5.Accounts receivable financing facilities such as Confidential Receivable Financing allows you to bill and collect your own receivables without any notification to clients/suppliers, etc. -
To learn more about Confidential A/R Finance and the best accounts receivable financing companies, click here
Receivable finance risks can be lowered by choosing a non-recourse facility, thereby transferring credit and bad debt risk to your financing partner.
THE GROWTH AND POPULARITY OF RECEIVABLES FUNDING
Industry experts such as Grandview Research estimate that " It is expected to register a compound annual growth rate (CAGR) of 7.5% from 2020 to 2027. The growth can be attributed to the increase in open account trade; the accelerating expansion of businesses in Asia, mainly led by China; the increase in cross-border factoring; and the rapid development of factoring services in Europe. Moreover, the increasing need for an alternative source of financing for Small and Medium Enterprises (SMEs) has also been driving the market growth"
CONCLUSION
Is receivables finance right for you? Accounts receivable financing small business solutions work. We have touched on some of the key ones, but further investigation by you will no doubt lead to other potential benefits. Speak to a trusted, credible, and experienced Canadian business financing advisor who can help you implement a receivables financing program that makes sense for your company when it comes to accounts receivable financing in Canada.
FAQ: FREQUENTLY ASKED QUESTIONS
What is receivables finance?
Receivables finance is the method in which a business can utilize to raise cash by financing the sales/outstanding invoices from its customer base. Generally, these trade receivables can be financed by either selling or assigning their A/R to a bank or commercial finance company, allowing it to invest funds in day-to-day operations and future growth objectives.
What is the purpose of receivables financing?
Accounts receivable finance allows a company to receive cash on their outstanding invoices prior to their customer payment. Firms can arrange to selectively fund some or all of their sales in this manner. The financing company charges a fee for the transaction, typically in the 1-2% range, which is expressed as a fee, and not an interest rate per se.
Click here for the business finance track record of 7 Park Avenue Financial
