YOU ARE LOOKING FOR ACCOUNTS RECEIVABLE LOANS!
RECEIVABLES FINANCING SOLUTIONS IN CANADA / ACCOUNTS RECEIVABLE FACTORING
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"Stop waiting 30, 60, or 90 days for payment – turn your invoices into cash today!"
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer Accounts Receivable Loans and working capital solutions – Save time and focus on profits and business opportunities
7 Park Avenue Financial: “Canadian Business Financing with the intelligent use of experience”
Accounts Receivable Loans: A Guide to Financing
Nothing is more important to a Canadian business owner or financial manager than being well-informed. Living in the past generally leads to failure in today’s competitive environment.
WHAT IS ACCOUNTS RECEIVABLE FINANCING?
AR / Accounts receivable financing, also known as accounts receivable ar financing, is a financial transaction where companies selling on business credit terms receive funding for a portion of their accounts receivable as they generate sales.
Receivable financing agreements can be managed in many ways, including factoring or selling your receivables or assigning A/R as collateral for a loan or line of credit.
"Stop waiting 30, 60, or 90 days for payment – turn your invoices into cash today!"
UNDERSTANDING THE ADVANTAGES AND COSTS OF A RECEIVABLES LOAN
So when it comes to business financing and credit, knowing the advantages and costs of accounts receivable loans and factor financing options become valuable for the company's balance sheet accounts receivable financing.
CAN YOUR COMPANY ACCESS THE FINANCING AND BUSINESS CREDIT YOU NEED?
Many Canadian businesses still feel they are captive in the problematic business credit environment.
While interest rates are improving in Canada and the stock markets seem to be doing fairly well, access to business credit in general and credit lines specifically is still complicated.
It’s kind of like a slow thawing out, with the freezer being Canadian chartered banks.
Many surveys suggest that a good percentage of Canadian businesses that apply for working capital and cash flow facilities for receivables finance do not get all of the financing they need if they are approved at all.
That’s when the benefit of an alternative accounts receivable financing agreement is beneficial to consider.
This forces you, the business owner or manager, to reevaluate what is available to keep your operating capital adequate.
We’re not blaming the banks (we love Canadian banks), but could there be a better way for small and medium-sized businesses to access credit…well, we think so.
Isn’t the saying that ‘necessity is the mother of invention’? In our case, independent finance firms, both U.S.-owned and Canadian, have stepped up to the bar, providing accounts receivable loans for your financing needs.
We hasten to point out that the word ‘loan’ is a misnomer here… our clients use the term also, but we caution them that the good news is that these facilities aren’t loans. They are just the monetization of your largest current asset - your a/r.
DON'T LET THE RECEIVABLE FINANCE TERMINOLOGY GET CONFUSING - TALK TO THE 7 PARK AVENUE FINANCIAL TEAM
Accounts receivable loans from a factoring company in Canada go by many different terms. Some you have heard of when it comes to factoring accounts receivable, some you may not have.
They include:
Invoice discounting
Factoring
Receivable financing
Accounts receivable loans provided by finance companies provide firms with immediate same-day/next-day funding for your invoices for your firm’s products or services.
Confidential invoice discounting or factoring—At 7 Park Avenue Financial, we recommend these solutions as the best factoring company solutions you can access. They allow you to bill and collect your own receivables while achieving all the benefits of A/R financing.
In effect, you maximize your cash flow from operations by monetizing your assets, i.e. the receivables.
A key concept in accounts receivable financing is the financing arrangement, which allows companies to access immediate cash using outstanding invoices as collateral. This process involves several steps and considerations, including fees and customer relations.
Accounts receivable loans are your answer to being stuck in the middle - at one end of the spectrum is your investment in accounts receivables and providing terms to your own clients.
On the other hand, it’s a question of being unable to access traditional business credit to finance that same investment.
So, do you know a good solution when you see one? Receivable financing would appear to be that solution. Turning your company into a cash flow machine via receivable finance from accounts receivable financing companies is a solid strategy thousands of Canadian firms have adopted.
HOW DO ACCOUNTS RECEIVABLE LOANS WORK?
The process is simple: as you generate sales, unpaid invoices are immediately sold, i.e. converted into cash, at a discount.
In Canada, the business factoring rates range widely - anywhere from 1-2% per month. The factoring fee is expressed as a fee by the industry and not a rate per se - that’s a major point of confusion that we at 7 Park Avenue Financial are forever explaining!
HOW DOES ACCOUNTS RECEIVABLE FINANCING WORK?
Your factoring fees are reflected on your income statement as a financing cost. Your company receives advance payment either the same day or the next day - money is deposited into your bank account, while your clients enjoy the payment terms you have provided.
Your firm's financial strength and issues such as the credit score and credit rating are significantly de-emphasized in receivables finance - the focus is on the general creditworthiness of your A/R and the ongoing cash flows generated by your collections.
HOW DOES THE BUSINESS OWNER ASSESS COSTS WHEN CONSIDERING HOW ACCOUNTS RECEIVABLE FINANCING WORKS
When it comes to accounts receivable factoring pros and cons, it is often about the cost.
Business owners accept this pricing when they realize they have decent gross margins to absorb this cost while at the same time using the newfound cash to take discounts with suppliers and sell more, and generate more profits.
In some cases, 50-100%of the financing cost can be offset by using your newfound cash flow. Your ability to decreases finance costs depends on your days' sales outstanding turnover ratio.
At 7 Park Avenue Financial, we take time to ensure that clients understand the higher costs of financing than traditional bank loans.
It often becomes a question of access to capital versus the cost of capital. Your focus on asset turnover will decrease the fee amount involved in factoring. We also ensure clients won't enter into lengthy contracts that don't work for their business model.
Here is an online factoring calculator you might find useful!
WHY IS DSO IMPORTANT?
Days Sales Outstanding (DSO) is a crucial metric for businesses to measure the average number of days it takes to collect payment from customers after a sale.
A lower DSO indicates that a company can collect its accounts receivable more quickly, which can significantly improve cash flow and reduce the need for accounts receivable financing.
Conversely, a higher DSO can lead to cash flow problems, making it more challenging for a business to meet its financial obligations.
Understanding DSO is essential for businesses to identify areas for improvement in their accounts receivable management process.
By analyzing DSO, companies can determine whether they need to implement more efficient invoicing and payment processes, improve their credit terms, or explore accounts receivable financing options to bridge the gap between sales and payment.
Effective management of DSO can lead to better cash flow, reduced reliance on external financing, and overall financial health.
Your company's DSO / DAYS OUTSTANDING is important because it measures the impact of receivable investment needs and the length of time it takes for you to turnover a/r and get paid on your sales. It is a key measurement metric of successful companies.
SOME BACKGROUND ON A/R FINANCING
Canadian business owners would prefer that their clients and suppliers don’t know they are financing their A/R via accounts receivable loans.
That’s why they investigate ‘C I D,’ confidential invoice discounting, allowing them to bill and collect their own receivables. (Traditional factoring via the U.S. and U.K. model requires your clients to be notified as part of your factoring financing agreement.
In banking funding, a/r revolves around a pledge of accounts receivable, while invoice factoring is a sale agreement.
An accounts receivable financing agreement is a financial solution where businesses sell their outstanding invoices to a finance company to obtain immediate capital.
In summary, thousands of firms in Canada are moving to this type of accounts receivable financing. It allows firms to meet debt obligations for short-term and long-term borrowing while generating immediate cash flow on sales.
Companies can also choose accounts receivable factoring with recourse or non-recourse, depending on their choice to keep or transfer bad debt collection risk. Larger corporations can choose between accounts receivable factoring vs securitization.
TYPES OF FINANCING OPTIONS
There are several types of financing options available to businesses, each catering to different needs and circumstances:
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Accounts Receivable Financing: This type of financing allows businesses to use their outstanding invoices as collateral to receive immediate cash. Accounts receivable financing companies advance a percentage of the invoice value to the business upfront, providing immediate working capital.
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Invoice Factoring: Invoice factoring involves selling outstanding invoices to a factoring company at a discount. The factoring company then collects payment from the customer and pays the remaining balance, minus a fee or discount, to the business.
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Asset-Based Lending: Asset-based lending involves using a company’s assets, such as accounts receivable, inventory, or equipment, as collateral to secure a loan. This type of financing can provide businesses with the funds they need while leveraging their existing assets.
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Line of Credit: A line of credit financing allows businesses to borrow and repay funds as needed, up to a maximum credit limit. This allows businesses to manage their cash flow and meet short-term financial needs.
CHOOSING THE RIGHT FINANCING OPTION
Choosing the right financing option depends on a business’s specific needs and circumstances. Here are some factors to consider:
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Cash Flow Needs: Businesses with immediate cash flow needs may prefer accounts receivable financing or invoice factoring, which can provide quick access to funds.
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Creditworthiness: Businesses with poor credit may find it more challenging to secure traditional loans or lines of credit, making accounts receivable financing or invoice factoring more attractive.
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Collateral: Businesses with valuable assets, such as equipment or inventory, may prefer asset-based lending, which allows them to leverage these assets to secure financing.
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Flexibility: Businesses that need flexibility in their financing may prefer a line of credit, which allows them to borrow and repay funds as needed, providing a more adaptable solution to their financial needs.
THE APPLICATION AND FUNDING PROCESS
The application and funding process for accounts receivable financing typically involves the following steps:
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Application: Businesses apply to an accounts receivable financing company, providing information about their business, customers, and outstanding invoices.
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Underwriting: The financing company reviews the application and underwrites the business, evaluating its creditworthiness and the quality of its outstanding invoices.
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Approval: If approved, the financing company advances a percentage of the invoice value to the business upfront, providing immediate working capital.
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Funding: The business receives the funds and can use them to meet its financial obligations, such as paying suppliers or employees. This process ensures that businesses have the necessary cash flow to operate smoothly and grow.
COMMON CHALLENGES AND SOLUTIONS
Here are some common challenges businesses face when using accounts receivable financing, along with potential solutions:
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High Fees: Businesses may face higher fees associated with accounts receivable financing, affecting their profit margins. Solution: Shop for financing companies offering competitive rates and fees to ensure you get the best deal.
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Complexity: The application and funding process can be complex and time-consuming. Solution: Work with a financing company that offers a streamlined application process and dedicated customer support to make the process as smooth as possible.
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Creditworthiness: Businesses with poor credit may find it challenging to secure accounts receivable financing. Solution: Consider alternative financing options, such as invoice factoring or asset-based lending, which may be more accessible to businesses with poor credit. These options can provide the necessary funds while accommodating the business’s financial situation.
By addressing these challenges, businesses can effectively utilize accounts receivable financing to improve their cash flow and support their growth objectives.
3 Uncommon Takes On A/R Finance
- AR loans can improve customer relationships by extending better payment terms.
- They're superior to personal credit cards for seasonal businesses
- It can be used strategically for tax planning and year-end inventory purchases
Did You Know
- 82% of business failures are due to poor cash flow management
- Average payment terms have increased to 45-60 days in 2024
- AR financing market grew 24% annually since 2020
- 64% of small businesses face cash flow challenges
- Companies using AR financing grow 50% faster than peers
KEY TAKEAWAYS
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Understanding advance rates drives most financing decisions - typically, 80-90% of invoice value is available immediately.
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Customer creditworthiness matters more than your business credit score
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Real-time funding speed revolutionizes cash flow management within 24-48 hours
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Flexibility allows selective invoice financing rather than complete portfolio commitment
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Clear fee structures determine actual costs - typically 1-2% per month on outstanding amounts
CONCLUSION
CALL 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor who can review costs, procedures, and benefits of accounts receivable financing in Canada, allowing you to win the cash flow and working capital battle!
Receivable loans for businesses are a solid way to run and grow your business, allowing you to sell more of your products or services. Let us show you how a receivable financing solution can free up your working capital for business growth goals.
FAQ
How do Accounts Receivable Loans improve business growth opportunities?
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Immediate access to working capital
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No need to turn down large orders
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Ability to take advantage of supplier discounts
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Flexibility to expand operations
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Better cash flow forecasting
What makes AR financing more attractive than traditional loans?
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No fixed monthly payments
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Funding based on invoice quality
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Minimal paperwork required
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Quick approval process
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No real estate collateral needed
What industries benefit most from AR financing?
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Manufacturing companies
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Staffing agencies
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Distribution businesses
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Service providers
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Government contractors
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Seasonal businesses
How does the factoring application process work?
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Simple online application
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Submit aging report
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Provide sample invoices
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Quick customer credit check
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Same-day approval possible
What are the typical costs involved?
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Factor rates from 1-2% monthly
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No hidden fees
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Pay only for what you use
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Transparent fee structure
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Volume discounts available
