OVERVIEW – Information on factoring and accounts receivable financing solutions in Canada. Working capital solutions comes in many forms . Here’s how they work and why they might be right for your cash flow needs
Accounts Receivable Financing In Canada . Canadian business owners and financial managers are hearing more and more about the concept of ‘factoring ‘their accounts receivable as a cash flow solution and overall strategy. Increasing numbers of companies are investigating what most people consider to be an ‘alternative financing’ strategy. Let’s dig in .
‘Alternative ‘clearly is in the context of alternative to a Canadian chartered bank line of credit. As Canadian companies build up their investments in accounts receivable ( and inventory ) they are finding it more difficult than every to ensure that their customers are paying them on time, typically not receiving those payments in 30 days per the terms they provide to their customers.
Naturally the current somewhat difficult economic environment as we head into the 2010 Business year lends itself to slow paying receivables. Management therefore is paying more and more attention to managing cash flow, and, most notably, this is taking more and more of senior management and business owner time.
The basic challenge is as simple as it gets – suppliers, landlord, and, dare we say it, your employees want to get paid on time, while the source of that cash is tied up in receivables that are paid in, many times 60-90 days.
Enter Factoring as a potential solution that will allow the Canadian company to benefit from increased cash flow, albeit at a cost. Just to be clear, the term factoring is also referred to as ‘invoice discounting’ and ‘accounts receivable financing.’
The mechanics at the outset seem overly simple. You send your invoice (or invoices) to the ‘factor’ firm who immediately, usually same day, sometimes next day, issues you funds for that invoice or group of invoices. All of a sudden you immediately have the working capital and cash flow to run your business.
Let’s be clear, this is not a loan per se. It is an immediate advance of funds against money owing to your firm for products and services you have delivered. We used alternate term ‘invoice discounting’ as noted above. The ‘discount ‘referred to be the amount of the finance charge the lender keeps for carrying the receivable.
We cant over emphasize the fact that the funds generated from an accounts receivable financing facility such as we have describe should be used for short term working capital needs.
You need to view the factoring facility in exactly the same manner as your bank line of credit (if you had one!)
So more about the potential ‘benefit ‘of factoring that we have alluded to. We can somewhat easily say that a factoring facility can be set up in fairly short time, certainly in much less time than it would take for your firm to negotiate a bank cash term loan or a Canadian chartered bank line of credit.
Another benefit? It’s simply that you receive that much needed cash same day. A very significant amount of the invoices, usually 80-90% is ‘advanced ‘to your firm the same day. The difference is held back as a temporary holdback, and remitted to your firm, less the finance fee, when you customer pays.
We have focused on some of the benefits of factoring, such as the strong cash flow aspect of this type of facility, and its ease of set up once you have found a solid partner firm.
However, the cost of the facility is usually between 1 – 2.5 % of the invoice amount for a 30 day period – Naturally you entered into such a facility because your customers probably weren’t paying you in 30 days already, so you can see that the financing fees can add up.
So, as in all business evaluations there are trade offs – if you firm can absorb the financing costs with adequate profit margins on your products and services you can categorically benefit from a factoring, a ka working capital facility! Seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success
Stan Prokop – founder of 7 Park Avenue Financial –
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years – Completed in excess of 100 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing. Info & Contact Details :
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Office = 905 829 2653
‘ Canadian Business Financing with the intelligent use of experience ‘
ABOUT THE AUTHOR
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.
Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.
7 Park Avenue Financial
Canadian Business Financing