YOUR COMPANY IS LOOKING FOR A/R FINANCE SOLUTIONS!
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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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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
How Receivable Financing Can Improve Your Cash Flow
When evaluating accounts receivable financing, business owners must weigh its costs against traditional bank loans - or risk having no working capital.
So, everything you wanted to know but perhaps were afraid to ask? Let's dig in.
Cash Flow Crisis? Your Invoices Hold the Key
Problem: Your growing business is weighed down by lengthy payment terms while expenses mount.
Every day of waiting for customer payments means missed opportunities and mounting stress.
Let the 7 Park Avenue Financial team show you how Receivable financing converts your unpaid invoices into immediate working capital, enabling business growth without accumulating debt.
3 Uncommon Takes on A/R Financing
- Receivable financing can improve customer relationships by enabling more flexible payment terms.
- Using receivable financing strategically can help negotiate better supplier terms.
- It serves as an early warning system for problematic customer accounts.
Why is Receivable Financing So Popular and Growing?
So ‘ what the dickens ‘ is Accounts Receivable financing all about for a starter, and why do top experts tell us that it’s one of the fastest-growing parts of the cash flow financing industry?
Accounts receivable financing companies play a crucial role in providing businesses with quick access to capital through technological advancements that streamline the funding process.
(We’re the first to love a great expression, and not everyone knows that it was Shakespeare who coined such terms as ‘ WHAT THE DICKENS, DEAD AS A DOORNAIL, in such plays as Merry Wives of Windsor and Henry V1, respectively)
WHAT IS ACCOUNTS RECEIVABLE FINANCING?
A/R finance is a method by which Canadian business owners and financial managers, predominantly in the SME commercial finance needs sector, can translate receivables into cash flow.
Traditional bank lines of credit are another option, but many companies can't qualify for financing capital due to their business stage or financial condition.
THE IMPORTANCE OF MANAGING A COMPANY’S ACCOUNTS RECEIVABLE
Effective management of a company’s accounts receivable is crucial for maintaining a healthy cash flow and ensuring financial stability around accounts payable and other short-term operating expenses.
Accounts receivable represent the amount of money owed to a company by its customers for goods or services sold on credit. Accounts receivable can significantly burden a company’s finances if not appropriately managed, leading to cash flow problems, reduced liquidity, and even bankruptcy.
Proper accounts receivable management involves timely invoicing, efficient collection processes, and effective credit management.
Companies should also regularly review their accounts receivable to identify potential issues, such as delayed payments or disputed invoices.
By effectively managing their accounts receivable, companies can improve their cash flow, reduce the risk of bad debt, and maintain positive customer relationships.
WHEN THE BANK SAYS NO, UNPAID INVOICES
By the way, we meet many clients who can access bank financing, but it's not enough! That's often because of hyper-growth, which we almost always wrestle with. (It throws ratios out of whack.)
ASSET-BASED LENDING SOLUTIONS DELIVER!
Accounts Receivable Factoring is a subset of asset-based lending in Canada.
It can be combined with an entire working capital non-bank revolving facility or used as a ‘ stand-alone ‘ method of financing your firm.
Accounts receivable are recorded as assets on the company's balance sheet. They represent outstanding invoices crucial for capital financing decisions and liquidity assessments.
For example, service companies such as personnel agencies or software technology companies often carry no inventory, and their entire cash flow model revolves around financing customer accounts.
BENEFITS OF ACCOUNTS RECEIVABLE FINANCING
Accounts receivable financing offers several benefits to companies, including:
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Improved Cash Flow: Accounts receivable financing allows companies to access cash quickly without waiting for their customers to pay their invoices.
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Reduced Risk: By selling their accounts receivable to a financing company, businesses can transfer non-payment risk to the financier.
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Increased Liquidity: Accounts receivable financing provides companies the liquidity they need to meet their financial obligations, invest in growth opportunities, and take advantage of new business opportunities.
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Flexibility: Accounts receivable financing can be tailored to meet a business's needs with flexible repayment terms and competitive interest rates.
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Cost Savings: By outsourcing the management of their accounts receivable to a financing company, businesses can reduce their administrative costs and focus on their core activities.
HOW ACCOUNTS RECEIVABLE FINANCING WORKS
Accounts receivable financing works by allowing companies to sell their outstanding invoices to a financing company at a discounted rate.
The financing company then collects payment from the customer and returns the balance to the business minus a fee. This process is often referred to as “factoring.”
Here’s an example of how accounts receivable financing works:
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A company sells its outstanding invoices to a financing company at a discounted rate, typically 70-90% of the invoice value.
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The financing company collects payment from the customer and returns the balance to the business minus a fee.
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The business uses the cash the financing company receives to meet its financial obligations, invest in growth opportunities, or take advantage of new business opportunities.
Accounts receivable financing can be structured in various ways, including:
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Asset-Based Lending involves using a company’s accounts receivable as collateral to secure a loan.
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Invoice Financing: This involves selling individual invoices to a financing company at a discounted rate.
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Receivable Loans: This involves borrowing money from a financing company using a company’s accounts receivable as collateral.
Overall, accounts receivable financing is a flexible and cost-effective way for businesses to manage their cash flow, reduce risk, and improve their liquidity.
WHAT DOES FACTORING COST?
So what about those receivables financing factoring rates in Canada?
The bottom line is that they vary from the factoring company and can be anywhere from 1.25% per month to 2%. In all cases, they are higher than bank financing, but they deliver on all the cash flow and working capital you need for your business.
While some may consider this method of cash flow financing from factoring companies expensive, the alternative is limited or no funding, which can be hazardous to (business) health.
When you cannot finance daily operations or meet any of your term debt obligations, unlocking receivables via accounts receivable finance is a true lifesaver for thousands of businesses in Canada.
WHAT IS THE BEST TYPE OF FACTORING?
Remember also that you are, in effect, ‘trading off’ the cost of financing receivables and those receivables financing factoring rates against your ability to grow your business, generate profits, and return on investment.
Various types of receivables finance are available, offering distinct advantages over traditional factoring. For example, you can receive immediate capital from unpaid invoices without notifying your clients.
Remember also that you could well be eligible to consider CONFIDENTIAL RECEIVABLE FINANCING. This would allow your company to bill and collect its own receivables without requiring notice from your clients, which is often the case with old-school factoring.
CASE STUDY -
Background: A Canadian custom parts manufacturer with annual revenue of $5 million, faced a critical business challenge. Their clients, primarily large industrial companies, demanded 60-day payment terms. Meanwhile, suppliers required upfront payment for raw materials, creating a severe cash flow squeeze that threatened the company's growth and stability.
The Challenge:
- Monthly raw material costs: $200,000 required upfront
- Outstanding receivables: Average $850,000 consistently tied up in 60-day terms
- Lost opportunities: Forced to decline $1.2M in new orders due to capital constraints
- Supplier tensions: Unable to take advantage of bulk purchase discounts
- Growth limitation: Operating at only 60% of production capacity
The Solution: ABC Manufacturing partnered with a receivable financing company that offered:
- 85% advance rate on verified invoices
- 24-hour funding on submitted invoices
- Non-recourse financing to protect against customer default
- Professional accounts receivable management
- Online portal for real-time invoice submission and tracking
Implementation Process:
- Initial setup completed within 5 business days
- Customer credit checks and approvals completed within 48 hours
- Integration with existing accounting software
- Staff training on invoice submission procedures
- Establishment of streamlined payment processing
Immediate Results (First 30 Days):
- Accessed $722,500 (85% of $850,000 outstanding receivables)
- Cleared all overdue supplier payments
- Secured raw materials for three months of production
- Negotiated 4% early payment discount with key suppliers
Six-Month Impact: Financial Improvements:
- Revenue growth: 65% increase (from $5M to $8.25M annualized)
- Production capacity: Increased from 60% to 100%
- Profit margin: Additional 3% through supplier discounts
- Working capital: Consistent access to $1.2M in revolving funds
Operational Benefits:
- Accepted all incoming orders without capital constraints
- Reduced supplier payment processing time by 75%
- Eliminated collection efforts and related staffing costs
- Improved supplier relationships led to priority delivery status
- Reduced raw material costs through bulk purchasing power
Customer Relations:
- Maintained existing payment terms for customers
- Increased customer satisfaction through faster order fulfillment
- Expanded capacity to handle larger orders
- Improved delivery times by 40%
Cost Analysis:
- Receivable financing fees: 2% per 30 days
- Offset by:
- 4% supplier early payment discounts
- Eliminated overtime labor costs
- Reduced administrative expenses
- Increased bulk purchase savings
Long-term Strategic Impact:
- Established predictable cash flow patterns
- Created scalable financing solution that grows with sales
- Improved competitive position in market
- Built stronger supplier relationships
- Enhanced customer satisfaction through reliable delivery
- Positioned company for sustainable growth
KEY TAKEAWAYS
- Understanding advance rates determines your immediate cash availability
- Credit verification processes impact funding speed and approval
- Fee structures directly affect your bottom-line costs
- Notice and non-notice factoring options influence customer relationships
- Collection services included can significantly reduce the administrative burden
CONCLUSION
Invoice factoring is one of Canada's most popular alternative financing methods, and it is an effective way for small businesses to finance their balance sheets.
Businesses can leverage unpaid invoices as collateral through accounts receivable financing to secure immediate capital, enhance cash flow, and support growth.
So, if you choose not to be ‘ the bank’ for your customers and would like more information, then call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you with your AR finance needs. It’s your probable solution to everything you wanted to know but were afraid of….!
FAQ
How quickly can I access funds from my invoices?
Funds typically become available within 24-48 hours after invoice verification.
What percentage of my invoice value can I receive?
Most financiers advance 80-90% of the invoice value immediately.
Will my customers know I’m using receivable financing?
This depends on the type of arrangement - confidential factoring keeps it private.
How does receivable financing / invoice discounting improve business growth?
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Provides immediate working capital
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Enables faster inventory turnover
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Supports new opportunity pursuit
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Strengthens supplier relationships
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Reduces cash flow stress
What makes receivable financing better than a traditional business loan?
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No long-term debt accumulation
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Scales with your sales growth
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Quick approval process
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Minimal paperwork required
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No collateral beyond invoices is needed
Can receivable financing help during seasonal fluctuations?
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Smooths out cash flow cycles
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Maintains steady working capital
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Supports inventory preparation
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Enables off-season opportunities
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Provides financial flexibility
What industries benefit most from receivable financing?
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Manufacturing
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Distribution
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Transportation
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Professional services
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Construction
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Technology companies
How does the approval process work?
