Confidential Invoice Finance Recevable Factoring | 7 Park Avenue Financial

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FACTORING RECEIVABLES IN CANADA

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Information On Confidential Invoice Finance & Accounts Receivable Factoring

INTRODUCTION

Cash flow can be a problem for businesses of all sizes, but there are three popular solutions: business loans/ working capital loans, receivables financing, and invoice factoring.

Accounts receivable financing isn't always in the headlines - we're the first to admit that.  But it should surprise business owners and their financial managers that thousands of Canadian firms are moving toward a working capital financing facility known as receivable factoring offered by most factoring companies in Canada.

WHAT IS RECEIVABLES FINANCING?

The accounts receivable financing solution is a solid way to access cash flow when your business needs it . Your company's invoices are the collateral and you receive immediate funding - avoiding waiting for days or weeks.. or months before getting paid!

Companies who sell on business credit/trade credit can choose which of their customers' invoices will be financed or drawn down under an approved facility.

At 7 Park Avenue Financial, we believe the best way for clients to finance their receivables is by choosing ‘selective receivables financing' under a ' confidential receivable finance solution.

WHAT ARE THE KEY ADVANTAGES OF RECEIVABLES FINANCING

The benefits of receivables financing include the fact that it provides a quick source  of cash flow, which allows companies to direct funds where they are most needed. This can be helpful for businesses in maintaining revenue stability.

Unlike traditional bank loans, receivables financing from a commercial finance firm is based on existing sales and receivables. . Though payment hasn't been received but products and services have been delivered.

What are the chances of a customer defaulting on an invoice? This is calculated beforehand by a business that assumes credit risk or that chooses to transfer the risk to financing providers.

IS THERE A DISADVANTAGE TO RECEIVABLE FINANCE / FACTORING

The primary disadvantage of receivables financing is that it costs more than regular business loans that are term loans in nature or unsecured bank facilities. A factoring fee is typically in the  .75% -1.5%  with respect to what the factoring company charges -  This may be due to a number of factors based on overall credit quality - in essence, the business owner must choose between access to capital or cost of capital.

WHAT IS INVOICE FACTORING

Invoice financing is a great way for Canadian businesses to access cash quickly. It offers users close to the full amount (80-90% ) of their accounts receivable's value, and a fee is charged by alternative funding providers - the balance of the invoice is paid to the company less a discount fee, which is not expressed as an interest rate per se.

This type of financing is short-term financing in nature, and brings no debt to the balance sheet - Balance sheets are in effect monetized, allowing businesses quick turnaround on funds.

There are numerous reasons why businesses choose or must choose to finance their sales outside traditional bank norms. One reason might be they aren't able to access all the business credit they need; in other instances, they might not qualify for any traditional bank credit solution while at the same time their business is growing!

  MORE ABOUT CONFIDENTIAL INVOICE FINANCING!

Here is a question. How does factoring work and what if you could get invoice finance that would allow you to bill and collect your own receivables under this facility? Possible? Absolutely!

Canadian business financing solutions such as Confidential A/R Finance provide your business with unlimited cash flow, and, unlike your competitors, you, not a third party, are in control of your facility.

Most Canadian business owners and financial managers know a bit about how factoring, aka receivable financing works but some terms are confusing to business owners/entrepreneurs

THE CONFIDENTIAL AR FINANCING DIFFERENCE

Factoring, we call 'old school factoring, is a process whereby you sell your receivables and receive immediate,  ie debtor finance same-day cash for those invoices.  99.9% of all the financing done in Canada under this business model has the third-party lender firm collecting your invoices and notifying the customer under the factoring agreement.

They also follow up for collection and interact with your customer because, as we said, you have sold them your receivables or receivables in whole or part



Clients of 7 Park Avenue Financial like the result:

Instant Cash Flow - A factoring company pays immediately on invoicing

Constant Working Capital replenishing

They don't necessarily like the 3rd party firm taking over the client relationship related to accounts receivable.

Enter Confidential Receivable Financing -  Under this scenario, your receivables are billed and collected by your firm. There is no third-party interference with the relationship you have with clients regarding billing and collecting around the general credit worthiness of your client base

Business owners like this latter model -  The bottom line is that your financing relationship is not disclosed to your customers, and that’s a good thing. Your firm achieves all of the benefits of accounts receivable financing, but your receivable factoring is in your control under the confidential invoice finance model.

Under traditional U.S.  and U.K. type receivable factoring, customers or small business receive a letter from either your business or the factoring firm, notifying your clients about the issue of your firm having sold its receivables. If you don’t care about that, no problem...! But if you care about the perception of that letter, you should consider confidential invoice finance.

Using a solid non-bank A/R finance model gives you a competitive advantage - It differs from bank financing. It is the alternative to the traditional factoring of invoices that we have talked about here. The bottom line is there is a world of difference in the facilities offered.

Cost Of Factoring / Confidential A/R Finance

The cost of confidential invoice discounting is the same as traditional factor financing - so that’s a good thing! This financing method is costlier than bank interest rates but does not require the significant emphasis that banks place on personal guarantees, outside collateral, ratios, covenants, credit limits, etc.

In fact, business owners may be surprised to know that credit limits are virtually unlimited if your business has the sales levels to justify increases in the facility and that the facility is operating properly.

CONCLUSION

As a business owner, you want to help ensure the vital cash flow necessary to run your business on a day-to-day basis. While traditional bank financing may be an option for many businesses the fact is that thousands of Canadian businesses don't qualify for bank funding, so A/R receivables financing remains a proven strategy to finance the business and unlock the investment that makes in accounts receivables.

Key issues for Canadian business owners to consider are the quick approval process, the amount of funding a business can access, as well as fees or interest rates. Ultimately it's a question of your path to business growth.

Speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor with a track record of business finance success, one who will assist you in closing this valuable type of working capital financing solution.

FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK/ MORE INFORMATION

What are accounts receivable?

Accounts receivable is the process by which companies invoice their accounts for products or services sold and delivered but not yet paid by clients under business credit trade terms. These balances are typically a large part of a company's assets on the balance sheet. Average trade terms tend to be 30 days but this varies depending on company policy or industry.

Financing an investment a company makes in a/r in a financial transaction can be expensive and business owners are always concerned about customer relationships.

BANK FINANCING VERSUS FACTORING 

When it comes to receivables financing the key issue revolves around the type of financing provider a business utilizes - either a bank or a commercial finance firm. Banks tend to finance receivables on an unsecured based while specialized lenders offer both secured financing and in some cases collection services.

A summary of key differences in bank financing versus third-party non-bank commercial factoring companies is as follows:

Bank approvals are slower to obtain and financing can be limited due to the stringent terms banks require around approval - The factoring industry  typically has  quick approval procedures

Banks do not collect the invoices they finance - in some cases third-party factoring firms participate in collection processes

Banks provide either term loans or unsecured lines of credit, the a/r factoring process has the paperwork confirming the purchase of the client receivables under agreed-upon factoring fees as clients pay the invoice - the factoring company  buys the invoices

Banks typically in Canada advance 70% against a/r balances, while  an accounts receivable   factoring company/receivables financing non-bank firms offer 80-90% funding in a factoring transaction

Bank interest rates and fees are typically lower than third-party non-bank commercial finance firms - banks charge an interest rate while factoring firms charge a fee - factoring companies can provide non recourse factoring which transfers credit risk to the finance firm for additional factoring costs

 QUESTIONS TO ASK WHAT TYPE OF RECEIVABLE FINANCE STRATEGY IS BEST FOR YOUR FIRM?   

Cash flow is a key priority for any business owner - Business owners need to address financing their working capital by asking themselves several key questions

1. What is the urgency and need around cash flow and access to capital - what financing method will provide the quickest access to cash?

2. What amount of business capital is required - accounts receivable factoring companies typically offer more financing

3. What emphasis does the company place on collection policy and adherence to trade credit terms offered to clients - Can more sales be generated by a more liberal credit term extended to clients when good relationships exist - Can a company benefit from immediate access to cash when trade credit terms are extended and financed by many factoring companies who can fund invoices less than 90 days old.