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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Accounts receivable financing in Canada. Also known as ' factoring ' or invoice discounting it has gained large popularity in the Canadian business financing marketplace. Why is that, and is it a solid consideration for your company? Let's dig in.
Canadian chartered banks clearly aren't the only ones that lend against your business assets these days. In the ' old days' they certainly always played the lead in this role, but these times as our buddy Bob Dylan said ' time's they are a-changing' ‘!
Although A/R finance was certainly in place and used in Canada prior to 2008 it is safe to say the global recession/financial meltdown in 2008 exasperated a lot of attempts for businesses to finance their assets. And we're even talking strong companies, sizeable in nature!
Unregulated companies, both U.S. and Canadian started at that time to gain significant traction in the commercial lending marketplace. Simply speaking they had more flexibility and to a certain extent are prepared to take on more risk when it comes to business lending. Factoring simply allows loans to be paid from the liquidation of your receivables. While facilities certainly exist that can be a ' one of ' in nature typically this type of financing is on an ongoing basis - replacing traditional commercial bank lines of credit.
The other reason A/R finance has taken off is that it is much less prejudicial to certain industries, stage of development, etc. Even a start-up with sales growth can easily be financed with factoring in Canada.
Other reasons for popularity include the fact that these facilities grow, pretty well automatically, with your business. Bank lines and other forms of term debt borrowing imply set credit limits, and covenants such as debt to equity and cash flow that must be maintained to satisfy ongoing financings.
Additionally, firms that often use factoring solutions have some serious seasonality or bulges in their requirements that a traditional lender just can't always address.
Any lender, certainly banks included, prefers to deal with growth type businesses. However, the A/R business financing solution, non-bank in nature even allows companies experiencing distress to access cash flow and working capital requirements. In truth though declining sales or firms who are in death spiral mode are not the best type of candidates for any type of finance!
The entire approval process in accounts receivable financing couldn’t be more basic. Initial requirements are simply your year-end financials, interim statements, and aged assets lists, including A/R and also A/P. On balance, Canadian firms can typically borrow up to 90% of outstanding accounts - which also is significantly better than bank margins for lending. Our preferred solution for clients is CONFIDENTIAL A/R FINANCE, allowing you to bill and collect your own receivables through the entire financing relationship with you’re A/R lender.
What does the Canadian business owner or manager need to know when assessing this new found popular method of financing? The basics are the actual financing or discount fee charged, understanding the actual advance rate (we previously mentioned 90% is the norm ) and getting a solid grasp on any miscellaneous fees including set up, termination, and miscellaneous expenses for wire transfers, etc.
If your sales are increasing and you can’t access the cash flow you need, create immediate positive cash flow with a factoring solution. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with working capital finance needs.
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Stan Prokop 7 Park Avenue Financial/Copyright/2020
