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ACCOUNTS RECEIVABLE FINANCE SOLUTIONS
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Financing & Cash flow are the biggest issues facing business today
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Receivable financing companies are essential for businesses seeking immediate cash flow solutions by converting unpaid invoices to cash
Struggling with cash flow issues? Discover how receivable financing companies can transform your business finances today!
A/R FINANCING - CANADA
Fasten your seatbelts. If you are encountering some business finance turbulence these days. Our good friends at Webster’s define turbulence as a ‘disorder… or commotion.”
That’s why an AR Finance facility might be one new tool in your finance toolkit! Let’s look at receivables financing and what you need to know.
RECEIVABLE FINANCE IS A GAME CHANGER
Receivable financing companies are crucial in allowing businesses to maintain a steady cash flow by converting unpaid client invoices from commercial or government accounts into immediate working capital.
Business owners and financial managers should consider funding amounts, rates, advance rates, funding speeds, customer service, and repayment terms when evaluating accounts receivable financing companies.
Let the 7 Park Avenue Financial team show you how receivable financing can be a lifeline for companies facing cash flow challenges. It allows your business to continue operations smoothly without waiting for customer payments. By leveraging receivable financing, companies can meet their short-term obligations, such as accounts payable, payroll, and other financial obligations.
A/R FINANCE IS A PART OF THE ' ACCOUNTS RECEIVABLE FINANCING ' SOLUTION IN CANADIAN BUSINESS
To put it in the proper context, receivable financing is a subset of what we term asset-based lending.
One of the options available in accounts receivable financing programs is the accounts receivable loan, alongside invoice factoring and asset-based lending, each structured differently to suit the client's needs. We hate to get lost in the terminology sometimes, but when you combine an Accounts Receivable facility with inventory financing it’s often called a working capital facility.
That is to say that both A/R and inventories are margined at a pre-agreed amount, and you borrow against them. Financing the balance sheet is what asset based lending is about.
DOES YOUR FIRM MEET BANK LENDING CRITERIA FOR IMPROVING CASH FLOW?
The fundamental belief of your AR finance partner is that the quality of the underlying collateral alone is good enough for you to borrow against. Banks in Canada are challenged to accept just that collateral alone, as their rules and regulations force them to focus on cash flows, balance sheets, historical cash flow, etc.
THE PERSONAL GUARANTEE ISSUE IN BUSINESS CREDIT IN CANADA
Clients often ask us if they must provide personal guarantees for such a facility. The answer is probably yes if you're a private company in the small to medium enterprise sector. But, and it’s a key point here, the emphasis on any accounts receivable financing facility is never the personal guarantee; it’s the underlying receivables or inventory that is being financed.
KEY TAKEAWAYS
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Invoice Factoring: This concept involves selling unpaid invoices to a financing company at a discount in exchange for immediate cash, which improves liquidity. Accounts receivable financing frees up capital and receivable financing rates are typically in the 1.5-2% range.
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Accounts Receivable Financing: This method allows businesses to use their accounts receivable as collateral to secure a loan, providing quick access to working capital.
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Cash Flow Management: Effective incoming and outgoing cash flow management ensures that businesses meet their financial obligations on time.
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Working Capital Solutions: Various financial strategies and products designed to optimize a company’s working capital and ensure smooth operations, including accounts receivable loans
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Receivable Funding: This involves obtaining funds based on the value of outstanding receivables, offering a flexible way to finance business needs.
CONCLUSION
Accounts Receivables financing works because it maximizes the amount of cash flow and working capital you can draw on. As we noted, if you combine it with an inventory line, you're more often than not either doubling or tripling your access to capital.
So when your current finance model isn’t working, it’s never too late to consider financing accounts receivable as a new finance tool for your firm!
Call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you in determining if it's time for your company to consider accounts receivable financing as a growing form of business finance.
FAQ
What is receivable financing?
Receivable financing is a financial arrangement in which businesses sell their outstanding invoices to a financing company to obtain immediate cash.
How do receivable financing companies work?
These companies purchase unpaid invoices at a discount, giving businesses quick access to cash while waiting for customer payments.
What are the benefits of using receivable financing companies?
Benefits include improved cash flow, reduced waiting times for invoice payments, and the ability to meet financial obligations promptly.
Can any business use receivable financing?
Most businesses with outstanding invoices can use receivable financing via a factoring company, but the terms and availability may vary based on industry and creditworthiness.
How does receivable financing differ from a traditional loan?
Receivable financing is based on the value of invoices rather than credit history, offering quicker and often easier access to funds than traditional loans.
Is receivable financing suitable for startups?
Yes, startups can benefit from receivable financing if they have unpaid invoices. This type of financing provides quick access to cash without needing extensive credit history, and the business's credit score can help establish it.
What fees are associated with receivable financing?
Fees can vary but typically include a percentage of the invoice value, factoring fees, and sometimes additional service charges.
How long does it take to receive funds through receivable factoring financing?
Funds from accounts receivable financing companies are usually available within 24 to 48 hours after the financing company approves the invoices.
Are there any risks with receivable invoice financing?
The risks of receivable loans include the potential impact on customer relationships and the costs associated with the financing terms. Many companies choose Confidential receivable financing, which allows them to bill and collect their receivables. Accounts receivable financing rates are expressed as fees and should not be compared to interest rates.
Can receivable financing help with seasonal cash flow issues?
Yes, receivable financing is particularly useful for businesses with seasonal fluctuations in cash flow, providing stability during slower periods.
How does invoice factoring impact business cash flow?
Invoice factoring improves cash flow by providing immediate funds based on outstanding invoices, reducing the wait time for payments.
What industries benefit most from receivable financing?
Industries with longer payment cycles or high invoice volumes, such as manufacturing, staffing, and logistics, benefit significantly from receivable financing.
How can businesses choose the right receivable financing company?
Businesses should compare factors fees, terms, reputation, and industry experience to choose the right receivable financing company.
