OVERVIEW – Information on accounts receivable funding solutions in Canada . When , why and how does AR Factoring work for cash flow finance and working capital needs
Accounts receivable funding , implemented properly, is a great way to put your cash flow financing needs on ‘ autopilot’. Would AR factoring work for your firm, and more importantly, how in fact does it work? Let’s dig in.
In business it’s a lot about sales revenues and cash flow drivers (there’s a couple hundred other issues, but let’s focus on these!) The core of our issue is that your sales, almost never, equals the amount of cash your company has in the bank.
Those two issues also are often key predictors of your current and future business ‘ health’. Another hard reality is that all businesses, small or large, are not created equal – as such some need a lot more cash on hand than others. A strong example is a capital intensive industry requiring heavy fixed asset investment, versus a service business that might carry no inventory and only requires receivable finance to support growth.
Unless you’re a retailer selling on cash your only cash inflows are the A/R collections coming into your firm. (The only other way to get cash is to get outside equity or to sell assets) One of the great ironies of business is that you can be growing and profitable on paper and going broke on a cash flow basis. Ouch!
It’s that operating cash that we’re focusing on in our discussion – we’re not talking about the ‘ investing’ or ‘ financing’ portion of the 3 part cash flow statement. Focusing on operating cash will always keep you business running ‘ normally.
If your business isn’t generating the cash it needs relative to your sales or even how your industry competitors are doing you require AR factoring / financing of some sort.
To avoid small, or large cash flow crunches consider AR factoring as a solution. It’s the ‘ unlocking ‘ of those receivables and converting them into cash that will put your company into cash flow problem immunity.
While most businesses sell on 30 day terms, most clients these days, small or large (the large clients are the worst?!) tend to pay you in 60-90 days.
AR Factoring, including our recommended version – (CONFIDENTIAL RECEIVABLE FINANCING) allows you to generate cash as you generate sales. Using a 30 day collection period this will cost you approximately 150-200$ on a $ 10,000.00 invoice. The key benefit – no A/R, cash in the bank.
While those financing costs are higher than a Canadian chartered bank facility they do provide you with all the cash flow and working capital you need to run your business, meet your obligations, etc.
While the only reason your firm would consider ACCOUNTS RECEIVABLE FUNDING is its inability to get proper bank financing we point out to clients that many of the largest corporations in the world utilize this same method of financing – they just call it something more fancy, such as ‘ securitization’ etc, and in many cases for larger firms the costs is equal to or less than a Canadian chartered bank facility.
Factors that will affect your pricing and approval include size of your business, the quality and size of your A/R base, etc.
If you’re considering a receivable financing solution , and you wish to consider the ‘ autopilot’ features of AR factoring in Canada seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can assist you with your Canadian business financing needs.
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