Factoring Canada Receivable Financing That Works | 7 Park Avenue Financial

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YOUR COMPANY IS LOOKING FOR FACTORING  OF RECEIVABLES IN CANADA

 RECEIVABLES FINANCING THAT WORKS VIA AN ASSET BASED LENDING SOLUTION! 

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        Financing & Cash flow are the biggest issues facing businesses today 

                              ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?

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ACCOUNTS RECEIVABLE FINANCING SOLUTIONS IN CANADA 

 Receivable Factoring in Canada is four things:

• New and increasingly accepted
• Misunderstood
• Different than in the U.S.
• Growing more popular every day as an alternative vehicle to business financing than bank loans or unsecured credit lines

UNDERSTANDING FACTORING RECEIVABLES - A RECEIVABLES MANAGEMENT TOOL FOR CASH FLOW

Canadian owners of small businesses and their financial managers keep hearing about factoring accounts receivable, and when we talk to clients who are pursuing this a/r financing option it is increasingly clear there is a lot of misinformation and ‘noise' about this unique type of financing that needs to be clarified.

So why is there so much misinformation about factoring companies and how can small business owners as well as medium-sized firms in Canada get the ‘real story' on the unpaid invoice solution to working capital?  Most firms have a significant a/r investment on the company's balance sheet.

Part of the problem is that factoring, in our opinion, means different things to different people, both within the industry itself and also to the Canadian business owners. Similar to the terms ‘cash flow' and ‘working capital' the use of the term is interchanged in a variety of ways.  Also, factoring isn’t a homegrown solution and migrated to Canada from the U.S. and Europe, where it has been in place for hundreds of years.

Factoring, also known as receivables financing, or ‘invoice discounting' is best utilized when firms are growing rapidly, have sales and verifiable invoices, and require injections of working capital for that A/R investment that otherwise might not be available through traditional sources such as the bank.

RECEIVABLE FINANCING VERSUS FACTORING - ACCESSING CASH FLOW ON YOUR TERMS

A company does not have to be in ' financial trouble ' to consider a/r financing as a cash flow solution. It is a solid alternative to a business loan in a term loan structure that brings debt to the balance sheet.

In 99% of cases that we deal with where a client is a ‘start-up' the initial financing through a factoring facility for unpaid invoices is a critical and valuable tool in the early growth of the company.

Let’s get back to the confusion around factoring. Traditional factoring in Canada is in fact simply the sale of your receivables and their purchase to a factor firm. The most immediate benefit is the immediate receipt of cash, which eliminates the need to wait for anywhere between 30-90 days for payment from your customer on the accounts receivable balance.

Over the years it is inherently obvious that every firm out there recognizes that delaying payments to your suppliers is an instant form of cash flow. However, when you are on the receiving end of that, waiting for your money, that is poor consolation!

Enter the factoring transaction to the rescue via factored receivables !!

ACCOUNTS RECEIVABLE FINANCING EXAMPLE

Does your business receive 100% of the invoice value when you sell your invoices either individually or bundled in a larger amount of invoices? The answer is ‘no’ – You generally receive on the same day anywhere from 75-90% of the invoice amount.

The balance is held back by the factoring company  as a holdback or buffer and paid to your firm immediately on final receipt of payment from your customer - less factoring fees which are expressed as a discount versus an interest rate. Those terms are spelled out in your factoring agreement.

At that point factoring would be ‘free', but it isn’t, there is a further deduction for the commission or financing cost by your factor firm. That cost is one of the greatest issues facing Canadian business owners because it is anywhere in the range from 9% / annum to 1-1.5% / month.

ASSESSING  FACTORING PRICING   / FACTORING COSTS

The costs associated with factoring in Canada have to be viewed in the context that although they are higher than traditional bank financing that point becomes moot because your firm probably cannot qualify at this point for a true Canadian chartered bank operating facility. So a factoring finance company solution simply allows you to grow your firm when you can’t obtain sufficient financing otherwise.

So now we have understood what factoring is, and why it has become a tool within the Canadian business financing tool kit. That’s the easy part. The challenge for Canadian business then becomes –

• What type of firm is the best one for my company and industry?
• How does this financing work on a daily basis visa most factoring companies?
• Am I comfortable enough to let the factoring firm notify my customers regarding outstanding invoices around verification and payment?
• Is there an alternative to involving my suppliers and customers in this financing process?

We advise clients that the best factoring facility in Canada is one in which your firm can bill and collect its own receivables. That type of facility is called non-notification and is as close to traditional financing mechanics as one can get. Talk to the 7 Park Avenue Financial team about Confidential Receivable Financing.

 CONCLUSION - CAN YOUR BUSINESS BENEFIT FROM FACTORING

So what's our bottom line summary – it’s simply as follows. Factoring in Canada is only misunderstood because business owners don’t have access to solid unbiased information on how it works, what it costs, and how it benchmarks as an alternative to traditional financing.

Some, but not many factoring companies exist that are very transparent in financing your firm and its customers. Factoring has higher costs, but those costs can grow your sales and profits considerably around new and existing customers, which has great appeal to the business owner.

Speak to  7 Park Avenue Financial,  a trusted, credible and experienced advisor in this somewhat misunderstood area of Canadian business financing.

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

 What is the factoring of receivables?  

Factoring is a financial transaction that allows a company to sell and finance its accounts receivables as the company generates revenues - Invoices are sold at a discount, which is often confused as an interest rate - which it is not.

What does factoring mean in finance?  

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