YOUR COMPANY IS LOOKING FOR AR FINANCE IN CANADA!
BUSINESS FACTOR FUNDING FOR CASH FLOW
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Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
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AR Finance empowers businesses to unlock the value of their accounts receivable, providing a lifeline of immediate cash flow.
Turn your unpaid invoices into instant cash – AR Finance is your key to financial flexibility.
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer AR Finance 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 FINANCING - CANADA
Thousands of Canadian business owners and financial managers perceive AR Accounts Receivable Finance as a solid strategy for financing their firms.
Let's examine 5 key advantages of this method of working capital finance.
But first, let’s take a quick step back and ensure we understand the product and the mechanics of this type of finance service related to your accounts receivable and outstanding invoices.
Of course, your receivables are the heart of the AR finance strategy. This financing differs significantly from a bank loan or, more commonly, the Canadian chartered bank line of credit. What is the main difference? Under a bank facility, the financing is based on your firm’s creditworthiness, with the receivables being assigned to the bank as collateral.
The difference then?
It's simple and basic. AR financing is not a loan to your company per se; instead, it's the purchase of your accounts receivable, generally on an ongoing basis. This sale of a/r via our business factor funding arrangement enhances your cash flow and working capital... immediately!
What is AR Finance / Factoring Finance?
Factoring accounts receivable (AR) is a financial solution for cash flow. It allows you to ‘sell’ accounts receivable to a third party, who advances cash to your firm against the receivable as security.
There is a fee for the service, which is often confused as an ‘interest rate’—which it is not. This type of receivable financing is a subset of ‘Asset-Based Lending’ in Canada and has become a very popular financing transaction between Canadian businesses and commercial factoring companies.
Also known as a factoring loan, it is not really a ‘loan’ per se, just the cash flow from your sales. So, the loan concept does not reflect the meaning of factoring as it pertains to ‘factoring companies’.
THE COST OF FACTORING RECEIVABLES
One of the main points of confusion that we find continually exists around this method of invoice factoring finance is the pricing.
While the bank facility charges your firm an annual interest rate (plus some miscellaneous fees here and there!), invoice finance involves selling your A/R at a discount. This allows you to receive funds and replace the A/R on your balance sheet with cash immediately as you make sales.
Mastering and focusing on your accounts receivable turnover ratio will lower finance costs in factoring!
The accounts receivable balance impacts the cost of factoring as it determines the amount of receivables available for sale and the potential financing options.
The ‘discount fee‘ for the factoring costs is approximately 1.5-2% and will be specified in your accounts receivable financing agreement. the factors affecting your cost are the time that the invoice is outstanding, the size of your a/r portfolio, and the general credit risk profile of your customer base/industry.
THE BEST RECEIVABLE FACTORING COMPANY / FACTORING SERVICE
At 7 Park Avenue Financial, we believe your firm deserves a cost-effective a/r financing facility that takes into consideration numerous factors around issues already mentioned, such as the size of the facility, the general credit quality of your sales, and whether you wish to bill and collect your receivables while still allowing you to achieve all the benefits of factoring.
Accounts receivable financing companies are crucial in providing funding solutions based on outstanding invoices and improving cash flow with quick funding and flexible contracts. At 7 Park Avenue Financial, we have called this ‘ Confidential Receivable Financing ‘, and it is our most recommended solution for clients who qualify.
The business owner must understand the different forms of factoring and how they work.
RECOURSE OR NON-RECOURSE AR FINANCE ?
In general, certainly, more often than not, invoice receivable finance is on a recourse basis, just as if you had a bank facility in place. Simply speaking, you’re responsible for any credit losses.
Unlike traditional bank loans, accounts receivable loans allow businesses to leverage their outstanding invoices for immediate cash flow, offering quicker access to funds and greater flexibility.
Purchasing business credit insurance can eliminate bad debt risk, especially if you have foreign or concentrated receivables. Ensure you understand non-recourse factoring and how it can help your business grow.
Finally, let’s get on to those advantages we spoke of. Here are just five of them. If you are having challenges accessing bank financing, these advantages should significantly appeal to your firm via a third-party financing company.
FACTORING ACCOUNTS RECEIVABLES IS SHORT-TERM FUNDING FOR YOUR OPERATIONAL CASH FLOW NEEDS
First, it’s a classic short-term funding strategy without additional collateral requirements or primary emphasis on guarantees of the company's owners.
Managing accounts payable alongside accounts receivable is crucial for maintaining financial stability, as it ensures a company's liquidity and operational health.
FACTOR FUNDING IS ALL ABOUT TIMING!
The second advantage of accounts receivable factoring is timing, and at 7 Park Avenue Financial, we firmly believe that timing is everything in business.
Outstanding invoices play a crucial role in cash flow timing, as they can be leveraged to secure immediate funding. The hard reality is that invoice financing provides cash flow on the same day you generate sales. That shortens your overall credit extension cycle by… you guessed it, 100%.
FINANCING YOUR RECEIVABLES DOES NOT ADD DEBT TO THE BALANCE SHEET
Our third advantage of AR Accounts receivable finance is simply flexibility. No debt goes on your balance sheet, you’re just monetizing assets and funds can be used for any general corporate purpose.
Accounts receivable are recorded on the company's balance sheet as assets. They represent money owed to the company and play a crucial role in liquidity analysis.
Our 4th advantage is somewhat of a double-edged sword.
Traditional AR finance in Canada involves the business factor funding your receivables as an extension of your credit department. However, under the right circumstances, your firm can acquire a confidential AR Finance facility that allows you to do all the billing and collecting yourself. Bottom line: It’s your call.
FOREIGN RECEIVABLES CAN ALSO BE FINANCED!
Finally, if your firm has many U.S. or foreign receivables, invoice finance is a solid way to address receivables financing through the business challenge of carrying out-of-country clients.
Financing accounts receivable can access capital based on outstanding foreign invoices, providing immediate funds against unpaid invoices. In this situation, even the exchange rate is taken care of.
KEY TAKEAWAYS
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Invoice factoring forms the cornerstone of AR Finance, allowing businesses to sell their unpaid invoices.
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Cash flow improvement remains the primary benefit, providing immediate access to working capital.
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Risk assessment is crucial in determining the viability of receivables for financing.
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Flexible funding options enable companies to choose between full-service factoring and selective invoice finance.
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Cost considerations include factoring fees and interest rates, which vary based on invoice volume and creditworthiness.
CONCLUSION
You owe it to yourself to check out and understand the factoring of accounts receivable in Canada.
Accounts receivable financing agreements can provide businesses with immediate capital by selling their outstanding invoices, helping to maintain cash flow and support operations effectively. Do any of our listed advantages make sense for your firm?
Properly done and understood, accounts receivable financing can dramatically change a firm's cash flow/working capital position.
Call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor who can assist you in finding a proper factoring facility from a company dedicated to your business capital needs.
FAQ
How does AR Finance improve cash flow?
AR Finance allows businesses to receive immediate payment for their invoices, eliminating the wait for customer payments and providing instant access to working capital.
What types of businesses can benefit from AR Finance?
Any business that invoices customers and experiences payment delays can benefit, including manufacturers, wholesalers, service providers, and startups looking to scale quickly.
Is AR Finance more advantageous than traditional bank loans?
AR Finance often provides quicker access to funds, requires less paperwork, and bases approval on the creditworthiness of your customers rather than your business’s credit history.
How does AR Finance impact my relationship with customers?
Most AR Finance providers offer non-notification factoring, allowing you to maintain direct customer relationships while benefiting from improved cash flow.
Can AR Finance help my business during seasonal fluctuations?
Yes, AR Finance provides flexibility to access funds as needed, making it an ideal solution for businesses with seasonal revenue patterns or unexpected growth opportunities.
What is the difference between recourse and non-recourse factoring?
Recourse factoring requires the business to buy back unpaid invoices, while non-recourse factoring transfers the risk of non-payment to the factor, typically at a higher cost.
How does AR Finance affect my business’s credit rating?
AR Finance generally doesn’t impact your business credit rating as it’s not considered debt but rather a sale of assets (your receivables).
Are there any industries that typically don’t qualify for AR Finance?
While most industries can use AR Finance, businesses that conduct primarily cash transactions or have long-term contracts may find it challenging to qualify.
What happens if my customer doesn’t pay the invoice?
The response depends on whether you’ve chosen recourse or non-recourse factoring, determining if you or the factor bears the risk of non-payment.
Can I use AR Finance if I’m a new business without an established credit history?
Yes, AR Finance focuses on your customer’s creditworthiness, making it an attractive option for new businesses struggling to obtain traditional financing.
What are the key factors to consider when choosing an AR Finance provider?
When selecting an AR Finance provider, consider their industry expertise, fee structure, funding speed, technology platform, and customer service quality to ensure the best fit for your business needs.
How does AR Finance differ from a business line of credit?
AR Finance provides funding based on specific invoices, offering more flexibility and potentially higher limits than a line of credit, typically capped based on your business’s overall creditworthiness.
What documentation is typically required to set up an AR Finance arrangement?
To set up AR Finance, you’ll usually need to provide your accounts receivable aging report, a list of customers, sample invoices, and your business’s financial statements to help the factor assess risk and determine terms.
ABOUT 7 PARK AVENUE FINANCIAL
7 Park Avenue Financial originates traditional and alternative financing and asset-based financial services providers that offer lease financing, cash flow and working capital financing, and business acquisition loans.
The company works closely with clients to develop key business strategies based on their unique needs. The company is committed to providing the highest level of customer service and innovation to help businesses succeed.
Combining our experience and solutions, we help our clients achieve profitable cash flow and debt financing and streamline the process with a full range of credit offerings.
