YOUR COMPANY IS LOOKING FOR RECEIVABLES FINANCING!
DISCOVER ACCOUNTS RECEIVABLE FINANCING /ACCOUNTS RECEIVABLE FACTORING
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Financing & Cash flow are the biggest issues facing business today
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EMAIL - sprokop@7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Business receivable finance in Canada requires a special sort of ' vision' when it comes to looking at the benefits, and mechanics of receivables account factoring. the business owner/financial manager's ability to be informed properly is key to success in this Canadian business finance area. Let's dig in.
HOW DOES RECEIVABLES FACTORING FINANCE WORK?
Most business owners seeking accounts receivable financing that we talk to are typically aware of the basics. If you're not let's do a quick mini recap! Unlike bank financing of working capital as it relates to receivables A/R financing via specialty lenders/factoring companies is about selling, not collateralizing your receivables. Paperwork is put in place at the start of your transaction which allows you, on an ongoing daily, weekly, or monthly basis ( it's your choice ) to receive ongoing advances against all sales you make.
HOW MUCH CASH CAN YOU GET FROM FACTORING A/R
Those advances are typically 90%, the remaining balance is held as a ' reserve' of sorts paid to you as soon as your clients pay. The financing charge in this type of financing is calculated daily based on the time it takes for your clients to pay.
WHAT DOES FACTORING COST?
In Canada, the overall financing cost from a factoring company is almost always significantly more expensive than bank financing, which costs in the 4-5% range per annum. The other side of the story is that companies that are not eligible for bank financing are almost always eligible for receivable account factoring, for unlimited amounts commensurate with their sales patterns and growth. There is no ' interest rate ' in factoring, you pay a fee, called a factoring discount which is generally in the 1-2% range .
WHAT DETERMINES FACTORING PRICING
Various factors determine your final pricing in factoring, including average invoice amount, overall client credit quality, etc. As your firm sells its accounts you generate immediate cash flow and working capital and access to cash for day to day funding needs. It's a short term asset based solution to funding your business and allows companies unable to access traditional financing to fund their growth.
So, if we maintain that many business owners/ financial managers are looking at it all wrong, how should they view this type of financing?
KEY BENEFIT OF A/R FINANCING IN CANADA
First of all, they must understand, and benefit from the fact that accounts receivables finance is not debt, the only balance sheet optics that take place with business receivable finance is that you have less A/R and more cash in the bank! By the way, you can also choose invoice factoring that is non recourse in nature, allowing you to hand off bad debt risk to your third party factoring partner.
ALL YOUR A/R CAN BE FUNDED
You should also understand that all North American receivables can be financing, which includes of course any U.S. business your firm does. Note that foreign overseas accounts will require some additional credit insurance in place, but this, by the way, is also required by our banks in a receivables loan from traditional Canadian banks.
7 PARK AVENUE FINANCIAL RECOMMENDS THIS FORM OF FINANCING AS THE BEST TYPE OF FACTORING
The majority of business owners we talk to focus on the key issue that traditional account factoring in Canada involves notification to their clients that this type of financing is taking place. That's ' old school'. We strongly recommend ' New School ', which is CONFIDENTIAL RECEIVABLE FINANCING, allowing you the business owner to bill and collect your own receivables under the concept of ' it’s nobody's business but yours' as to how you are financing your company.
CONCLUSION
The fact that this type of financing has been around for hundreds of years must be a validation of some sort that this method of financing works. In fact, the cash flow you generate from account factoring can be used to take supplier discounts and negotiate better pricing with your vendors based on higher credit limits and enhanced relations with your vendors. Both of these can significantly reduce the costs of your financing by 1/3 in many cases!
Don't forget that you're no longer constrained in taking on a new business of larger size because you know that working capital financing is in place to facilitate current asset growth in receivables and inventory. Just being able to sell more, collect quickly, and turnover assets more efficiently is a solid way of looking at this method of financing.
Have you been looking at A/R financing in the right manner? Seek out and speak to a trusted, credible and experienced Canadian business financing advisor for some of that ability to quickly and efficiently ook financing working capital
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Stan Prokop
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