OVERVIEW – Information on factoring receivables in Canada. Utilizing Account Receivable Finance requires specialized information on seeking the right type of a/r financing that works for your business
Account receivable finance is actively sought by thousands of Canadian business owners and financial managers. The A/R component, next to cash on hand itself, is the most liquid asset you have on your balance sheet.
What issues are key to understanding the true value of ‘factoring receivables’? There are several, so let’s dig in.
Prior to addressing so those issues its prudent to make sure we are also singing from the same hymn book as to what exactly A/R financing is . Essentially it’s a direct competitor to bank financing, which also of course offers business lines of credit secured by receivables.
Banks collateralize your A/R and allow you to borrow against it, commercial finance companies offering ‘factoring’ solutions create paperwork that allows you to transfer ownership of receivables as you generate sales. The benefit to your firm is instant cash at all times.
Why then is account receivable finance a common choice for business owners? Simply because it’s an ongoing source of funds without many of the constraints and approval criteria imposed by our Canadian chartered banks.
One of the best analogies in understanding why a business employs factoring receivables is to analogize it to a retail who offers credit card payment. Instead of waiting 30 days or more for payment and instead of limiting how much he can sell the credit card firm pays the retailer the same day.
Pricing of factoring services in Canada is considered more expensive than bank financing but the trade off is the cash flow that is no longer limited to waiting for large clients or government accounts , etc to pay your firm.
So let’s cover off 7 key issues that you must weigh, consider and discuss when selecting the right A/R Finance solution.
First of all owners need to understand that you are still responsible for any bad debt, as you would be in a bank financing scenario. But you should no also that non recourse financing and credit insurance can be implemented to offset the bad debt issue.
Issue # 2– your overall customer base will be a key factor in the pricing and risk attributed to your factoring transaction. 99.99% of the time all North American receivables can be financed. On occasion the issue of ‘ concentration ‘ i.e. having just a couple of major clients might become a discussion issue.
Issue 3 – Your historical ability to collect your A/R and the invoice size are always considered. Typically the best pricing for factoring A/R is for facilities in excess of 250k, but bottom line any size of A/R portfolio can be considered for financing
Issue 5 – there are numerous A/R financing firms in Canada, all of them have different focuses as to size of transaction, types of industries they prefer to finance, and even where they themselves are located as to where your business is located.
Issue 6 – Numerous specialty areas are often the most fertile ground for A/R finance firms – they include transportation, trucking, personnel firms, etc. But the bottom line is that any commercial receivable can in fact be financed.
Our final point, issue # 7 is our recommendation to consider CONFIDENTIAL RECEIVABLE FINANCING. Unlike most receivable finance services it allows you to bill and collect your own A/R without notice to any other client, supplier, etc. It’s as close to bank financing as you’ll get.
If you’re interested in ensuring you have covered off all the issues in considering Receivable Finance seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can assistin ensuring you’ve covered off key issues.
Author: Stan Prokop – founder of 7 Park Avenue Financial
Originating business financing for Canadian companies, specializing in working capital, cash flow, and asset based financing. In business 10 years – has completed in excess of $90 Million of financing for Canadian corporations. Core competencies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
Info re: Canadian business financing & contact details:
7 Park Avenue Financial
Off. 905 829 2653
Cell 905 302 4171
7 Park Avenue Financial
Canadian Business Financing