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FACTORING AND INVOICE DISCOUNTING IN CANADA
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Financing & Cash flow are the biggest issues facing business today
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South Sheridan Executive Centre
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Suite 301
Oakville, Ontario
L6J 7J8
Invoice discounting in Canada. It's one of a couple of terms Canadian business owners use for the concept of ' factoring invoices ' in Canada. We can safely say that Canadian business owners/managers view this method of financing as somewhat of their own review of ' THE GOOD, THE BAD, and AND THE UGLY '. Let's dig in.
WHEN DOES ACCOUNTS RECEIVABLE FINANCING MAKE SENSE?
No small business owner or manager in Canada, especially in the start-up to SME sector business denies that financing a business is a challenge. So when exactly does utilizing A/R finance for unpaid invoices make sense, and when does it get ' good ' and how you prevent ' bad' and ' ugly '?
3 SITUATIONS THAT SIGNIFY YOU NEED A CASH FLOW FINANCING SOLUTION
When to utilize invoice discounting is probably the easier one for us to address first, with a viewpoint to allow you to see quite quickly if you're a solid candidate for this method of financing your firm. Typically you find yourself in one of probably 3 different situations.
1. The first solid qualifier is simply that you have typically found your firm is unable to access traditional chartered bank financing in Canada. In some cases you do have access to bank capital, but... it's not enough. That's very simple because our banks focus heavily on a small handful of criteria that all must be in place - they include profits in your firm, cash flow coverage, strong personal credit of the owners of the business, etc.
2.We can absolutely say that thousands of firms that could never qualify for bank credit in Canada access daily millions of dollars in commercial financing via factoring. That issue is the key difference in invoice factoring versus assigning your receivables to a bank. That assignment versus sale paperwork is really the main difference in bank versus non-bank financing of receivables. The quick explanation for this seeming conundrum is simply that factoring, a subset of asset-based lending, focuses on your assets, not necessarily your performance. Hopefully, you're constantly striving to improve financial performance. Otherwise, your business is probably a hobby as opposed to a business!
Growing is the other component of what drives the success of A/R finance Invoice factoring in Canada. Banks typically prefer regular steady growth. The business owner and entrepreneur would love to generate 10% growth per annum neatly in the future. But business life doesn't work that way. Large opportunities emerge that the owner/manager wishes to seize. It's at that time that invoice financing comes to the rescue.
3.Our third category. It's simply allowing your company to be more diverse. That might include taking on larger deals and contracts, selling into the U.S. or other foreign markets, launching new product lines, etc.
All of the above scenarios lend themselves to a Factoring/invoice discounting solution.
THE COST OF SHORT TERM INVOICE FACTORING / HOW DOES FACTORING OR INVOICE DISCOUNTING WORK?
So, if that’s the ' GOOD ‘, what then is the bad and ugly?! We can boil that down into a few very helpful tips. First of all, consider a 7 Park Avenue Financial Confidential Accounts Receivable financing solution that doesn't involve your suppliers or clients - any third party, when it comes to how your firm is financed. Your firm still maintains credit control on your outstanding invoices unless you choose a non recourse type facility, which is also available. The bottom line is your company takes over billing and collecting when utilizing the ' non-notification' type facility - you collect payment when customers pay.
Traditional factoring (we call it ‘old school ' ) can only be viewed as cumbersome when it comes to the paper trail that is required and notification to clients, etc. Also, make sure to get a handle on pricing as not all parties make understanding that simple. And it is simple if you are dealing with the right firm or advisor. The cost of invoice finance is expressed as a fee on each invoice, not an interest rate and the invoice amount/invoice value of your overall a/r portfolio will factor into your overall final fee, which is typically in the 1.5-2% range/
CONCLUSION
So, if your working capital financing is ' broken ' consider ' unbreaking' it with a solid invoice finance from a factoring company solution. Factoring or invoice discounting solutions can cash flow your sales revenues immediately. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with surmounting the business finance challenge.
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Stan Prokop
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