A Quick Dive Into The Math Of A/R Financing – Going Undercover In Factoring Receivables

OVERVIEW – Information on the different methods and cost of AR Finance solutions in Canada . Factoring receivables via a confidential receivable financing solutions works when you understand the math and benefits


AR finance solutions in Canada go under various ‘ pseudonyms ‘ – they include ‘factoring’, ‘ invoice discounting’ etc. Not only can the names be confusing sometimes (there are some subtle differences in each type); actual arithmetic around this type of financing is clearly not understood by clients we meet and talk to. Let’s dig in.

Therefore if there’s a theme or message it’s both the ‘ COST’ and the ‘ STYLE ‘ of this growing method of financing your business.

When it comes to recommending what type of receivable financing solution you look into we’re clearly recommending ‘ CONFIDENTIAL RECEIVABLE FINANCING ‘. It, like traditional factoring, invoice discounting, etc is a subset of what we can broadly term ‘ asset finance ‘. The key benefit of this method of business financing is clear – monetizing your sales as soon as they become accounts receivable!

Unlike traditional forms of A/R finance your company is responsible for all billing and collections, and the better you manage your accounts the more cash flow and less financing costs will become very apparent.

Why does the business owner want the ability to manage their own business and keep their financing private? The more obvious reasons are pretty simple – Canadian business owners and managers feel that their suppliers, competitors, and other parties don’t necessarily need to know how their business is financed. Most business people would agree that the posture of Canadian business is more conservative than that in the U.S., which is probably why Confidential A/R finance lends itself very well to the Canadian market.

Another key benefit of financing receivables in this manner is the ability to get 90% margining of your accounts. This differs from the traditional 75% allowed by Canadian banks. Funds received from financing in this matter allow your firm to:

Reduce payable levels
Take supplier discounts – enhance vendor relations with key suppliers
Negotiate better pricing based on new found cash ability

As we said the key to understanding why this method of financing might work for your firm is often in the math. Financing is based on a 30 day collection period and costs increase on a ‘ per diem’ basis for your clients that pay later than 30 days. Beware of any facility that doesnt quote you a per diem rate.

Using a $1000.00 invoice as an example it will cost you about 15$ to finance that invoice if your terms of payment are 30 days

The danger of understanding A/R finance pricing comes when business owners and managers compare it to bank financing or working capital term loans. A better way to look at it is to consider it in the same manner as if you were offering a discount to your accounts for prompt payment.

The reality of financing your customers is that a lot of working capital and cost is tied up in your investment in A/R. Confidential A/R financing allows you to operate your company, grow your company, and not take on excessive debt or search for new equity.

Strong asset turnover and new found cash flow allow you to stimulate more sales and generate more profits. 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 cash flow 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:


Greg LaBella
7 Park Avenue Financial
Off.   905 829 2653

Cell   905 302 4171


7 Park Avenue Financial
Canadian Business Financing