OVERVIEW – Information on receivable services in Canada . When it comes to purchase financing and AR Finance certain negative perceptions around this method of financing can be easily corrected . Here is how
Receivable services as they relate to purchase financing are often a major point of discussion when it comes to two areas of consideration – how they work on a day to day basis, and of course… pricing.
Some might say there are some ‘ rough waters ‘ as it relates to this aspect of Canadian business financing. We’ve got some thoughts on pricing, but our real focus on AR finance today is really how a facility works. Let’s dig in.
Many clients we talk to are simply not aware of the growing popularity of receivable finance – and it’s a world wide movement by the way – if anything Canada was a bit late to the game. Confusion often exists in the mind of the business owner/financial manager as it relates to the differences in financing your A/R via the bank or a third party commercial finance firm.
We can say somewhat ‘ tongue in cheek ‘ that one of those differences is approval by they way!. But putting aside getting approved the real difference is how these facilities work.
The words ‘ purchase ‘ and ‘ collateral ‘ are key in understanding the financing differences. In the case of a Canadian chartered bank it takes your AR as collateral under a borrowing agreement. The paperwork around receivable financing in effect states you sell your A/R as opposed to collateralizing it. That’s the key difference.
One benefit of receivable services is that you can utilize it on an ongoing basis for all your accounts, all the time, or, if you choose you can selectively only utilize what you need at any given time. In fairness that of course also exists at the bank under their facility – in both cases you are only paying for what you use.
For 99% of all purchase financing of receivables there is a requirement that your client be ‘notified ‘ of the financing arrangement. This creates those ‘ rough waters ‘ for many business owners as they don’t necessarily like to have the world see how they are financing their business, much less their competitors.
So can the owner/manager seeking cash flow financing avoid that whole issue of notification? The answer is a resounding ‘ YES YOU CAN ‘ – and that is achieved via Confidential Receivable Financing.
How does that work then? It’s pretty basic – your firm and your firm alone are responsible for billing and collecting your own invoices. Naturally the better you are at extending credit and managing asset turnover in receivables lowers the overall cost of this method of financing. (These costs can be reduced big time in other ways – including your new found ability to take discounts with suppliers as well as the opportunity to negotiate better pricing with suppliers based on payment terms and ability)
The qualifications for Confidential A/R financing are still the same – your customers must be inside North America, you must have the ability to produce regular financials and your business must be in a steady or upward spiral as opposed to ‘ downward ‘!
AR Finance purchase financing of receivables makes total sense when you are unable to achieve the cash flow and working capital needs via a bank or owner equity. To re view how things work , costs, and benefits consider seeking out and speaking to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can assist you in navigating rough waters in financing considerations for your company .
Stan Prokop – 7 Park Avenue Financial :
Business financing for Canadian Firms , specializing in working capital, cash flow, asset based financing , Equipment Leasing , franchise finance and Cdn. Tax Credit Finance . Founded 2004 – Completed in excess of 90 Million $ of financing for Canadian corporations . Info /Contact :
7 PARK AVENUE FINANCIAL = CANADIAN A/R FINANCING EXPERTISE
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7 Park Avenue Financial
Canadian Business Financing