YOUR COMPANY IS LOOKING FOR RECEIVABLE FINANCE!
FACTORING FINANCING IS THE PERFECT ' ASSET BASED ' SOLUTION FOR BUSINESS OWNERS!
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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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EMAIL - sprokop@7parkavenuefinancial.com
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South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Email = sprokop@7parkavenuefinancial.com
Canadian small and medium-sized firms ( The ‘ SME’ sector of our economy ) do not have the financing alternatives enjoyed by their larger, often public company counterparts As an example the main difference is that many larger corporations use the concept of securitization as a method of financing working capital and enhancing balance sheets. This type of sophisticated financing allows firms to improve liquidity and satisfy lender loan covenants while using an ' invoice financing' concept as a source of working capital.
SMALLER FIRMS CAN'T ATTRACT ALL THE FINANCING THEY NEED - HENCE DISCOUNT FACTORING!
Smaller firms, usually due to cost, lack of financial sophistication and size are unable to utilize such alternative financing. Additionally, in the current 2009/2010 financial environment many firms are struggling with their ability to maintain bank credit facilities, let alone increase them!
Therefore factoring continues to grow and become more widely used in small and medium-sized firms in the Canadian business environment.
WHAT IS THE KEY BENEFIT OF INVOICE DISCOUNTING / ACCOUNTS RECEIVABLE INVOICE FINANCE?
The factoring or ' invoice discounting' of receivables allows firms to convert working capital into immediate cash. This comes with a cost from factoring companies which we will also discuss. Unbeknownst to many Canadian firms, they have the option of selling some of their receivables, at once or on an ongoing basis, or all of their receivables - again, on a one-time basis or ongoing.
RECOURSE VERSUS NON RECOURSE FINANCING
It is critical to note that when a firm sells, or factors, ( 'factoring') or discounts (they all mean the same thing) they retain no ownership or interest in the receivable. Depending on how the factoring or working capital facility is structured they may or may not have responsibility for the ultimate non- collectability of the account. Lenders address that issue in a variety of manners.
As we talked about previously, larger corporations utilize this process in a very large and serious way. Millions, rather Billions of dollars are packaged up, put into special investment vehicles called ABCP or SPV ( asset-backed paper ) ( special purpose vehicle ) and then sold to corporate and institutional buyers based upon the overall quality of the total assets.
AT 7 PARK AVENUE FINANCIAL WE RECOMMEND ' CONFIDENTIAL RECEIVABLE FINANCING '
IMPORTANT NOTE – Small and medium-sized firms in Canada can ‘ mirror’ the securitization process by considering CONFIDENTIAL A/R FINANCING, which allows them to bill and collect their own receivables via the factoring company with no notice to their clients, vendors, etc. Check it out!
Smaller and medium-sized companies in Canada aren't able to enter into large multi-year arrangements, with lower costs, that would allow them to achieve the benefits of a true securitization.
A LOGICAL METHOD TO FUND YOUR SALES
Smaller and medium-size firms have the ability to, either with their banks (possible, but doubtful) or independent finance firms, sell receivables under a factoring or discounting agreement. This means they don't have to spend time and costs on setting p those asset-backed commercial paper trusts, deals can be structured uniquely to the customer's situation, and there is a lower cost and no reliance or need for rating agencies, lawyers, etc.
MANAGING THE STRESS OF CASH FLOW NEEDS
If used on a regular basis the factoring or invoice discounting process continually generates new working capital, allows the customer to generate better rates as time goes on, and, most importantly, relieves the financial stress of managing working capital.
IT'S YOUR OPTION WHEN TO UTILIZE FACTORING - SOMETIMES OR ALL THE TIME
It is very important to note that smaller companies have some distinct choices that on occasion the larger firms don't have. They can on a one-time basis, or periodically choose to utilize this alternate financing method.
We discussed previously the company's responsibility around the invoice not being ultimately collected. If that is the case, 99% of this type of financing in Canada is done on a ' recourse ' basis. This means the customers have to pay back the lender or replace the invoice with another one of equal value.
THE COST OF INVOICE DISCOUNTING - IT'S NOT AN INTEREST RATE!
Typically the costs in Canadian receivable financing and factoring vary greatly. Rates range from 1 - 2% on a monthly basis. Most customers view this as an ' interest rate ', while in fact it is a factoring fee or interest rate. Discount factoring fees vary due to average invoice amount size and overall quality and turnover of your client a/r base.
QUICK EASY ACCESS TO CASH FLOW NEEDS
Generally, the factoring (receivable discounting) facility can be set up in a couple of weeks. As we can imagine it takes the larger corporations many months (and many thousands of dollars) to set up their large dollar securitization facilities.
YOUR FACILITY GROWS AS YOUR SALES GROW!
Invoice factoring facilities are set up efficiently for SME firms, and allow a company to grow with unlimited working capital access.
CONCLUSION
In summary, more and more firms are turning towards factoring (receivable discounting) to manage their working capital and liquidity challenges. Firms are strongly advised to search out experts in this area who know the Canadian marketplace, as it differs substantially from the U.S. environment in this unique method of alternative financing.
Seek a trusted, credible and experienced Canadian business financing advisor who can assist you in successfully completing A/R financing alternatives successfully when you are considering factoring and invoice discounting. Invoice factoring loans are a perfect solution for small businesses and large firms also!
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Stan Prokop
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