YOUR COMPANY IS LOOKING FOR RECEIVABLE FINANCE!
Accounts Receivable Financing / Factoring Companies Canada
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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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Receivable finance in Canada. The business battlefield is littered with firms who either don't understand business AR finance via accounts receivable financing companies, both from a pricing or a mechanics perspective or, heaven forbid, have hooked themselves up with the wrong factoring finance partner firm.
THE BASICS
Receivable financing is simply the ability to cash flow your sales on invoices that you have issued wherein you have shipped products or provided services. The ability to receive payment on your sales before your client pays is the foundation of a/r finance. Naturally, your client has recorded your invoice as an ' account payable '. Those fundamentals are at the core of financing with receivables. It's not a receivables loan, per se, although some might call it that - in fact it is simple the monetizing of your invoices.
THE DECISION TO FINANCE RECEIVABLES
It's that proverbial fork in the road, and let's assumes the Canadian business owner or financial manager has taken it - he or she has opted to solve cash flow problems that have hampered growth and entered into an invoice financing receivables financing facility.
But were the costs of the facility properly addressed, and are you working with the right lender? Those two issues alone, when properly solved, or addressed, give you working capital and cash flow piece of mind when you've made the decision on factoring receivables
UNDERSTANDING COSTS OF ACCOUNT RECEIVABLE FINANCING AND HOW IT WORKS
You can make a huge mistake in receivable finance in Canada by not taking a bit of time to, as we say ' peel back the onion ' and ensure you understand the cash costs and mechanics of business AR financing.
So what issues should you consider when picking the right finance firm for your AR financing? Just like any other business or consumer contract, you might look at you'll find that you need to address ' the fine print ', which typically isn’t the favourite thing we like to do, right?
Some of those miscellaneous charges can add up- for example, some finance firms might want you to guarantee a minimum amount of financing business during any period - that might be a month, quarter, etc. A fee might be assessed if you have lower turnover.
WE'RE TALKING ABOUT THE ' REAL' COSTS OF A/R FINANCING - SPOILER ALERT - IT'S NOT AN INTEREST RATE
The actual ' interest ' or financing charge is a subject of great discussion when we talk to clients about A/R finance. In general terms, the amount of financing you do, the quality of your customer base, and to a certain degree the overall financial strength of your firm play a key role in pricing.
But business owners will find that the industry does in fact place a huge amount of importance on your A/R portfolio itself, not your own firm's general creditworthiness. And that’s a good thing.
Also, watch for the miscellaneous items that can add up, they include wire transfer charges, service fees, admin fees, - OMG it's almost as if we're banking in Canada! Bottom line ? Understand the cost of factoring!
WORKING WITH A CANADIAN FIRM , OR A U.S. COMPANY ON YOUR AR FINANCE
If you're dealing with the right firm you'll find that you can finance all your Canadian and U.S. receivables without any issue. We do point out to clients though that if your receivables have a foreign component you may require some sort of credit insurance - which by the way isn’t a bad thing anyway.
In a perfect world, you want to be able to move either to another A/R finance firm or to a bank or other lender without penalty. Customers have a bit more negotiating power than they know when addressing this issue, and it should clearly be discussed upfront at the time of entering into the facility.
DIFFERENCES BETWEEN BANK RECEIVABLE FINANCING AND COMMERCIAL FACTORING COMPANIES
Finally, make sure you understand the differences between a bank facility, a working capital term loan, and invoice financing, aka ' Receivable Factoring '. The characteristics of a business AR financing facility are different - it's not a loan, it’s not a collateralized facility such as with a bank, it’s simply the ongoing selling of accounts receivable as you generate sales, with the option of financing which sales you wish when you wish. It's simple as that.
Oh and by the way, we’re all for minding our own business, so be sure to consider a facility that allows you to bill and collect your own a/r without notification to suppliers, clients, etc. It’s our absolute recommended facility. At 7 Park Avenue Financial we call it ' CONFIDENTIAL RECEIVABLE FINANCING ' - our recommended way to finance receivables outside of banking credit lines.
So is this method of Canadian business financing the answer to your current and future cash flow problems? As we said, it can be, if you take some time to master some of those tricks of the trade.
CONCLUSION
If ar finance suits your business it's a solid way of increasing cash flow and can provide a true lifeline to businesses that are working capital challenged. Alleviating the cost and risk of carrying investments in receivables is an important part of the business financing process.
Speak to a trusted, credible and experienced Canadian business financing advisor today on how you can best understand and utilized business AR financing.
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Stan Prokop 7 Park Avenue Financial/Copyright/2020
