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
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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Email = sprokop@7parkavenuefinancial.com
Better Than a Business Loan: Invoice Factoring
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer factoring for accounts receivables 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”
Factoring / Invoice Discounting: A Guide to Finance
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.
The main difference, for example, is that many larger corporations use securitization to finance working capital and enhance their balance sheets.
This sophisticated financing allows firms to improve liquidity and satisfy lender loan covenants while using a cash advance based on invoice financing as a source of working capital.
Businesses can choose invoice discounting based on their specific financial needs and goals, considering factors like cash flow urgency, customer relationships, and cost-effectiveness.
CASH FLOW CHALLENGE? YOUR RECEIVABLES HOLD THE KEY!
Waiting for A/R payments can create a major cash flow gap in your business. This can strain customer relationships and limit growth—and let's not forget about making payroll.
Let the 7 Park Avenue Financial team show you how to gain immediate access to the cash you need to maintain a healthy business.
3 Uncommon Takes:
- Factoring companies can actually improve customer relationships by enabling more flexible payment terms
- Invoice discounting can serve as a market research tool by revealing customer payment patterns and help in determining creditworthy customers
- The service can strengthen supplier negotiations through an improved cash position
DID YOU KNOW?
- 84% of businesses report improved cash flow within the first month
- Average invoice payment time reduced by 45 days
- 92% client retention rate in established factoring relationships
- 60% growth in the Canadian factoring market over the past 5 years
- 30% average cost reduction compared to unsecured business loans
SMALLER FIRMS CAN'T ATTRACT ALL THE FINANCING THEY NEED - HENCE DISCOUNT FACTORING!
Smaller firms are usually unable to utilize such alternative financing due to cost, lack of financial sophistication, and size.
Additionally, in the current financial environment, many firms are struggling to maintain bank credit facilities, let alone increase them!
Businesses can sell or leverage their unpaid invoices to access immediate cash flow, which can be crucial for managing working capital. Therefore, factoring continues to grow and become more widely used in small and medium-sized firms in the Canadian business environment.
WHAT IS INVOICE FACTORING?
Invoice factoring is a type of invoice finance that allows businesses to sell their outstanding invoices to a third-party factoring company at a discounted rate.
This arrangement provides immediate cash flow, which can be crucial for covering operational expenses, investing in growth, or managing cash flow gaps. Invoice factoring is also known as debt factoring.
The invoice factoring process involves selling invoices to a factoring company at a discount, typically ranging from 80% to 90% of the invoice value.
The factoring company then collects payment from the customer, manages credit control, and processes invoice payments. This can be beneficial for businesses that want to free up resources and focus on growth rather than spending time and effort on collecting payments.
At 7 Park Avenue Financial, we recommend confidential receivable financing, which means that the factoring company does not notify the customer of the arrangement. This can benefit businesses that want to maintain control over their sales ledger and customer relationships.
Invoice factoring can provide several benefits, including:
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Immediate access to cash flow
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Reduced risk of bad debt
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Improved cash flow management
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Increased flexibility in managing cash flow gaps
However, it’s essential to weigh the pros and cons of invoice factoring carefully to determine if it aligns with your business needs. Some potential disadvantages of invoice factoring include:
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Fees charged by the factoring company
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Loss of control over the sales process
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Potential damage to relationships with customers
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Dependence on the factoring company for cash flow
When choosing an invoice factoring company, it’s crucial to consider factors such as the factoring fee, the level of credit control and collections service provided, and the company's reputation.
At 7 Park Avenue Financial, we can help you navigate the process and find the best invoice factoring solution for your business.
In contrast to invoice discounting, invoice factoring involves selling invoices to a third-party company rather than using them as collateral for a loan.
Invoice discounting typically provides a cash advance against outstanding invoices, but the business is still responsible for collecting payment from the customer.
On the other hand, invoice factoring transfers the responsibility of collecting payment to the factoring company.
Ultimately, invoice discounting and factoring depend on your business needs and circumstances. Invoice discounting may be the better option if you want to maintain control over your sales ledger and customer relationships.
However, invoice factoring could be the way to go if you want to free up resources and focus on growth.
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 can sell some of their receivables at once or on an ongoing basis, or all of their receivables - again, on a one-time or ongoing basis.
In invoice discounting, the customer pays the company as usual, whereas in invoice factoring, the customer pays the factor directly.
How quickly can I access funds from my invoices?
Funds typically become available within 24-48 hours after invoice submission.
What percentage of invoice value can I receive?
Most factors advance 70-90% of the invoice value immediately, with the remainder (minus fees) paid upon customer payment.
Do my customers need to know I’m using factoring?
This depends on the type of factoring arrangement - disclosed or confidential factoring options are available.
RECOURSE VERSUS NON RECOURSE FINANCING
It is critical to note the key differences between invoice factoring and invoice discounting. When a firm sells, factors ( ‘factoring’), or discounts (they all mean the same thing), it retains no ownership or interest in the receivable.
Depending on how the factoring or working capital facility is structured, it may or may not be responsible for the account's ultimate non-collectability. Lenders address that issue in various ways.
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!
A LOGICAL METHOD TO FUND YOUR SALES
When considering invoice discounting vs factoring, it's important to understand the differences between these two financing methods. Cost, credit control, and confidentiality play a significant role in determining the most suitable option for a business's specific needs.
MANAGING THE STRESS OF CASH FLOW NEEDS
If used regularly, 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 essential to note that smaller companies have some distinct choices that, on occasion, the larger firms don't have. On a one-time basis, they can periodically choose to utilize this alternate financing method.
We previously discussed the company's responsibility regarding the invoice not being ultimately collected. If that is the case, 99% of this 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!
The costs of Canadian receivable financing and factoring typically vary greatly. Rates range from 1 - 2% monthly. Most customers view this as an ' interest rate 'when, in fact, it is a factoring fee or interest rate. Discount factoring fees vary due to the average invoice size and the 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 few weeks. However, 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 efficiently set up for SME firms, allowing a company to grow with unlimited working capital access.
KEY TAKEAWAYS
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Rapid access to working capital drives immediate business growth through advanced payment on invoices.
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Credit assessment focuses on customer payment history rather than your business credit score.
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Flexible funding grows with your sales volume without creating traditional debt obligations.
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Professional collection services often improve customer payment behaviour
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Understanding fee structures enables optimal use of the service
CONCLUSION
In summary, more and more firms are turning towards factoring (receivable discounting) to manage their cash flow challenge.
Seek a trusted, credible, and experienced Canadian business financing advisor who can assist you in completing A/R financing alternatives when considering factoring and invoice discounting. Invoice factoring loans are a perfect solution for small businesses and large firms, too!
FAQ
What immediate impact can invoice factoring have on my business operations?
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Instant access to working capital
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Improved vendor relationships
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Enhanced purchasing power
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Stronger negotiating position
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Reduced administrative burden
How does invoice discounting improve my competitive position?
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Ability to accept larger orders
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Capacity to offer better payment terms
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Enhanced supplier relationships
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Increased operational flexibility
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Strategic growth opportunities
What makes factoring different from traditional bank loans?
How do I choose the right factoring company?
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Industry experience matters
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Transparency in fee structures
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Technology integration capabilities
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Customer service reputation
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Financial stability indicators
How does the cost structure work in invoice factoring?
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Factor fees typically range from 1-2%
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Volume discounts available when the business sells invoices
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Early payment incentives
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No hidden charges for processing invoice payments
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Flexible payment structures
RELATED ARTICLES:
Invoice discounting vs Factoring
Invoice factoring - what it is
Factoring Finance
