Information on working capital factoring and financing solutions. Financing receivables and Inventory might just not be the challenge you think !
Working Capital – Canadian business owners want to maximize the utilization of their receivables, inventory and incoming orders and contracts to leverage cash flow. The goals are very clearly, grow business revenues and profit with the right combination of internal growth, borrowing from banks and others, and achieving the best blend of working capital and cash flow by leverage those current assets.
Long term debt or additional new equity is not often the business owner’s choice in arranging more cash flow for the business.
We meet with many business owners who tell us they have the opportunity to significantly increase sales.They are looking for a financial strategy to grow those profits and equity while the at the same time minimizing loan interest and any other external financing costs. When a business gets its hand on a proper working capital solution it has the potential to reduce or minimize debt, and increase bottom line equity or value in the business.
Our point is simply that if your business can absorb a reduction in your gross margin – (the cost associated with receivable, inventory and PO financing) then you can avoid debt and equity scenarios and still grow your business.
The Canadian business owner and financial managers challenge is to grow the business and understand the cost of growing the business under various financing methods.
Clients are often surprised to learn how much their business can chance by a simple analysis of their financing choices.
Using factoring or inventory financing as a cash flow supercharger is many times the best strategy for working capital enhancement. Most non financial business owners do not appreciate that power that working capital turnover
There are all sorts of tools that your business can very easily use to monitor your working capital needs. One is simple you need to monitor your working capital to sales ratio.
How do we calculate the working capital to sales ratio? It’s easy. Working capital is essential your current assets minus your current liabilities. Take that number form the balance sheet and divide it by sales. If you have a low ration then you ability to generate cash flow is stronger.
The solution for Canadian business owners is to maximize the turnover of those current assets such as receivables and inventory via working capital facilities. If those facilities can’t be arranged with a bank then you have the option of working capital lines of credit and asset based lines of credit that will cover receivables, inventory and even under many circumstances bulges for new contracts and purchase orders
Working capital facilities via factoring or inventory financing or purchase order financing maximize your cash flow – they also cost more and many Canadian businesses simply focus on the cost. But they fail to measure the cost of carrying those receivables and the cost of not turning over that inventory efficiently. These two costs alone have the ability to completely in some cases erase your cost of financing under a factor and cash flow facility.
How does a business compute its cost of credit? The formula relates to your firm not taking credit and payment terms extended by suppliers. Your suppliers give you terms that specify a payment date the amount of the discount if you pay early, and of course the due date. The cost of NOT taking that discount is huge! Most owners don’t realize that. If your firm can negotiate better prices by utilizing financing strategies such as factoring and inventory financing and purchase order financing you have just become the best comparison shopper in business!
In summary, the cost of not taking trade credit discounts is very significant when your business has the ability to take those discounts via aggressively financing your receivables and inventory. Utilize innovative strategies, you will find that the cost of paying in full is higher that the cost of a working capital facility to cash flow those receivables and inventory!
Stan Prokop – founder of 7 Park Avenue Financial –
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years – has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Office = 905 829 2653
Fax = 905 829 2653
‘ Canadian Business Financing with the intelligent use of experience ‘
ABOUT THE AUTHOR
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.
Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.