A Primer On Factoring Your Receivables

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Is Factoring Receivables A Good Idea?

Our goal is to explain the art and science of business to business factoring so that Canadian business owners can understand the benefits and costs of commercial accounts receivable financing. 'Commercial ' receivables of course refer to any non-consumer related a/r.

Companies that consider the financing of A/R are in different phases of their life cycle. In some cases they are growing to quickly or have unique customer situations, thereby eliminating the chance of accessing traditional bank financing solutions - aka the 'business line of credit'. Factoring is a form of a line of credit but has some major technical differences as to how it is utilized on a daily basis. One of a number of possible answers to overcome cash flow obstacles is the financing of your a/r. There are of course other solutions - working capital loans, both short term and long term in nature, P O Financing, sale leasebacks, etc., etc. We're focused on factoring today.

It is important to know that financing your AR can come in the form of a one-time scenario, a periodic solution, ( when you need it ), or, most commonly, on an ongoing basis. Bottom line is that your firm has the option to choose.

WHY IS FACTORING ACCOUNTS RECEIVABLE USED?

It might seem a little too obvious, but the financing of your accounts if generally for the day to day running of your business, retiring obligations with suppliers, employees, lease and loan repayments, etc.

In well-run companies, working capital needs should generally fluctuate - otherwise, your firm might feel sometimes that it is in constant crisis mode. Clients of 7 Park Avenue Financial are often the first to admit the reason they are seeking the advice of a business advisor is that when cash flow is constantly tightening they look for new innovative solutions in Canadian business financing.

Simply speaking business to business factoring is the sale of your receivables for cash. It sounds so simple, that’s why we are hoping to convey the 'stripped down' explanation of this type of financing, while at the same time warning clients where some of the complexity and risk lies if you don't have proper business finance advice.

Receivables normally have to be paid in 30 days - however, most owners know that 60 and 90 days are common occurrences. Your ability to smooth out the cash flow ultimately will reflect in your overall business financing success.

Let's focus in on your core asset, your A/R. Go to any balance sheet and receivables will make up a very large portion of your 'most near liquid' asset. Your ability to monetize that asset on an ongoing basis creates working capital.

Business owners need to consider that their ability to monetize cash through receivables factoring, in essence, can become a competitive tool, allowing you to penetrate markets, and generate more sales and profits at the expense of your competitors.

Business to business factoring has been around for 100 years. Why is it more popular today? The simple 'stripped down' reason it is easier to obtain than bank credit, and can often be fully functional in your company within a couple of weeks.

Why Factoring Accounts Receivable Is Utilized By Canadian Business

Why do business owners like and utilize A/R financing? - simply because it has a limited focus on personal covenants of the owners, other asset collateral is not required, and under the right circumstances, your customers and suppliers aren’t even aware of how your firm has suddenly become flush with cash.

How Much Does Accounts Receivable Financing Cost?

So that’s all the upside, is there any downside? Only if you don't know what you are doing! You need to focus on what types of business to business factoring are out there, what are the costs (they vary from 1-2%/month) and if your receivables partner has the flexibility and straight forward processes to accommodate your day to day activity.

What Is The Best Type Of Factoring

At7 Park Avenue Financial we recommend Confidential Receivable Financing. It allows the business owner/financial manager to bill and collect their own a/r with no interference by 3rd parties. For more info on Confidential A/R Finance CLICK HERE FOR MORE INFO ON CONFIDENTIAL RECEIVABLE FINANCING.

Speak to a trusted, credible and experienced Canadian business financing advisor with a track record of business financing success to ensure our 'stripped down' version of business factoring meets your business and cash flow goals.

' Canadian Business Financing With The Intelligent Use Of Experience '

Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil

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