The Problem With Growing Your Company Is Customer Receivable Financing .. Until Now
OVERVIEW – Information on how Canadian business can achieve growth and profits and cash flow via funding customer trade receivables
Funding customer receivables , i.e. trade/commercial A/R makes many business owners and financial managers feel that the sometimes want to ‘ break up ‘ with their clients .
Naturally they can’t do that because sales and customer accounts are the lifeblood of any business. That’s why financing AR is a top priority Canadian business. Let’s dig in.
Business owners/managers can finance their sales in a number of ways. They can utilize commercial bank lines of credit, they can use commercial non bank receivable financing, or more sophisticated larger firms can use a process called ‘ SECURITIZATION’ for funding receivables. When it comes to SECURITIZATION both consumer and commercial receivables can be financed and cash flowed.
When companies ‘ discount/factor’ (they are the same thing) customer accounts they are essentially using a sub set of Asset based lending, focusing on the receivable as the asset.
Financing A/R in Canada is a huge part of the business economy. It is a good per cent age of bank lending and top experts tell us that it’s constantly growing, due in no part to the 2008 world wide financial meltdown
when commercial lending failed Cdn. business. In many parts of the world it’s growing at 10%+ annually we’re told.
For the most part invoice discounting is handled by non bank commercial finance firms. They vary in size, types of owners, and geographic servicing.
One of the strong appeals of funding customer trade receivables through a non bank solution is that it is much easier to obtain approval. As well firms with limited equity don’t need to consider putting in extra capital in their business – they simply finance their sales as they occur. It provides financing for Canadian businesses that can’t meet bank criteria but still are growing their businesses.
Simply speaking it’s a method by which businesses, primarily in the SME (small to medium enterprise) can fund their recovery and growth, particularly if some of those ration such as debt/equity are temporarily out of sinc. One pundit called it the solution for filling the ‘ credit hole’ in business lending! In some cases businesses just wish to diversify their sources of capital.
How complicated is the entire process? The answer: NOT VERY! As your firm generates sales you are immediately advanced cash based on the value of the A/R.
Some level of confusion and misunderstanding exists around the different types of trade receivables funding in Canada. Our recommended solution to clients is CONFIDENTIAL A/R FINANCE, allowing you to bill and collect your own receivables.
If your financing resources simply are not performing to your satisfaction you must look to other channels of financing. One of them is funding trade A/R, providing you with the capital to run and grow your business. It is efficient, available, and will provide you with the liquidity you need.
So don’t consider breaking up with your clients; Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your working capital 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