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OVERVIEW – Information on financing receivables in Canada for working capital and business funding and Cash flow solutions. It might be time to fully test this method of business capital
Business funding in Canada. When it comes to financing ( a/r financing ) receivables clients we talk to seem somewhat hesitant sometimes to be ready to grasp all the basic aspects of this method of financing cash flow needs. And that goes from CFO’s of mid market type firms all the way down to early stage companies that are just starting to generate profits. Let’s dig in.
Why then is the business owner/financial manager reluctant to get out of the shallow side of the pool
and step into the deep waters of factor funding in Canada? At the end of the day is just one additional way to generate instant cash flow when your company is selling its products and services. It’s, quite simply a way to beat your clients at the waiting game when it comes to collecting your accounts.
Did you know there are two basic kinds of receivable finance in Canada? One is what we can call ‘ traditional/old school ‘ whereby your A/R is co managed by the finance partner. The other is a Confidential A/R financing solution which allows you to bill and collect your own accounts, while all the while achieving all the benefits of this finance method.
While each has its own advantages and issues we prefer Confidential A/R financing because it’s more business as usual. At the end of the day each of the two methods are simply ways in which your finance partner assesses risk and manages their business.
99% of the confusion (in our humble opinion) around business funding for A/R in Canada revolves around some of the semantics. Essentially we’re talking about the difference between how a bank finances your A/R versus alternative A/R finance – aka ‘ factoring’. The bank simply creates a legal document around their ability to hold the collateral of your receivables as an ongoing borrowing. So from an accounting perspective its business as usual since your AR stays on your balance sheet and you simply utilize a line of credit to borrow against 75% of your receivable base.
75% is the standard borrowing base you get when financing your sales via a Canadian chartered bank facility. ( By the way factor funding allows you to borrow against 90% of you’re a/r base, so you’ve got instant 15% additional borrowing power!
On the other hand is the traditional or confidential method of financing the same asset. In this case the paperwork/legal docs of your finance partner show that you’ve in effect ‘ sold ‘ your A/R and are receiving immediate cash draw on that borrowing base.
We see little difference in the paperwork; however we see a lot of difference, as we have said in how the facility operates on a daily basis. That’s where the confusion lies with clients. That’s when, as Ricky Ricardo said, we’ve got a ‘ lot of splaining ‘ to do!!
If you’re looking for the straight goods on business funding in Canada take some time to understand just a handful of basics. Step out of the shallow side of the pool and wade in! Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your 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
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7 Park Avenue Financial
Canadian Business Financing