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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Selling receivables via (A/R) AR funding is often a solid move as part of an overall asset finance strategy. But can this financing move lead to bad results? It only can if done improperly. Here's our views on ' secret tricks to successful invoice financing when helping clients with the right moves in cash flow financing. Let's dig in.
Carrying receivables is one the largest liquidity challenges for any size business - from start-up to major corporation. The (hopefully) profits locked up in A/R can contribute to major cash flow issues if not funded properly. By the way, it sure helps if you can turn those invoices into cash faster - with or without financing!
How does the ' traditional’ asset finance strategy of selling receivables work? The fundamentals are simple - it when we get down into the weeds that there are potential problems. A/R Funding is simply the sale of your receivables on an ongoing basis for instant cash. Interestingly, advances on your A/R in this manner are even more generous than banks. (Banks finance 75% - the right invoice finance facility delivers a 90% financing.
Business owners/mgrs should not get caught up in security paperwork behind an AR asset finance facility. Like banking, it collateralizes your receivables and, very much like bank facilities, places a blanket security on your firm. The right commercial A/R finance partner will always allow you to finance equipment, inventory and other needs separately.
What are the key factors in how a lender assesses your A/R portfolio? Typically they look at:
Non-North American Receivables - Cdn and U.S. accounts are ok to finance
Typical amts and size of your invoices
Quality of your aged receivables - invoices over 90 days old can't really be financed.
WHY DO BUSINESSES CONSIDER NON BANK AR FUNDING
Faster approval for such facilities
Generally straightforward paperwork
Less reliance/emphasis on owner guarantees
Good quality receivables and your management ensure almost unlimited financing capability - you've turned your firm into a cash flow machine.
General credit quality (often a factor of what industry you are in)
Commercial A/R financiers love high growth (banks don't necessarily ascribe to hyper-growth, favouring stability in sales and finances)
So what about those ' BAD RESULTS ' when it comes to asset finance and selling receivables for a revolving credit facility need? Things can go wrong when you don't understand the higher cost of non-bank A/R asset financing. Clients we initially meet are both surprised and confused about how various firms price these facilities.
Additionally, many clients we meet don't fully understand this is often an interim solution - its higher cost with unlimited capital that more often than not takes clients back to a traditional finance solution.
The largest negative in selling receivables? Opinions vary, but we believe strongly that most Canadian business owners and financing mgrs don't like the ' notification' aspect which traditional A/R finance demands - i.e. advising your clients this financing is in place. Do we have a solution? Your bet! Consider a CONFIDENTIAL INVOICE FINANCE strategy, allowing you to bill and collect your accounts, all the while maintaining your client relationships while having access to unlimited funding.
So, is selling receivables a solid asset finance move? Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your asset finance needs. It’s all about those tips, tricks and secrets for successful financing of your business.
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Stan Prokop
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