Accelerate Your Cash Flow: The Power of Accounts Receivable Financing
Stan Prokop
Canadian Business Financing | Cash Flow Financing | Asset Based Lending | Equipment Finance | Lender Financing | Purchase Order Financing | Acquisition Financing | SAAS Financing | Acquisition Financing
Cash Flow Crisis? Discover the Accounts Receivable Financing Solution
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Financing & Cash flow are the biggest issues facing business today
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"The lifeblood of any business is cash flow. Accounts Receivable Financing is the transfusion that keeps that blood pumping." - Anonymous Financial Advisor.
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer Accounts Receivable Financing and working capital solutions – Save time, and focus on profits and business opportunities
7 Park Avenue Financial: “Canadian Business Financing with the intelligent use of experience”
ACCOUNTS RECEIVABLE FINANCE SOLUTIONS IN CANADA
Introduction
When Canadian business owners and financial managers want to resolve business financing challenges, they are prepared to consider all alternatives.
One of the most popular these days is accounts receivable ar financing, a financial arrangement that allows businesses to leverage their unpaid invoices as collateral for borrowing.
This form of financing provides immediate cash flow by converting outstanding invoices into upfront funding, enabling companies to cover operational expenses or invest in growth opportunities without waiting for customer payments.
Benefits of Accounts Receivable Financing
One of the other reasons this type of financing is becoming more popular is that it allows you to increase your cash flow and working capital without considering additional equity arrangements in your company.
An accounts receivable financing agreement is a financial solution that allows businesses to sell their outstanding invoices to finance companies, providing immediate capital.
Even more important is that many business people miss that an A/R finance strategy is not ‘debt’ - you are simply monetizing your current assets, i.e., accounts receivable, into immediate cash.
How It Works
The concept is exceptionally simple. Where it gets complicated is that clients don’t really understand some of the terminology, costs, and benefits of this type of financing.
An accounts receivable loan is a funding method where businesses borrow against their outstanding invoices, allowing them to access cash in advance.
This type of financing offers benefits such as financial flexibility and the potential for growth as a business's revenues increase.
As we said, it couldn’t be simpler—you generate sales and, via your receivables, sell those invoices, gaining immediate cash flow. Clients tell us it certainly is not unusual these days for their A/R to run anywhere from 30 to 90 days from the viewpoint of when they can expect payment from their customers.
So, imagine how your firm would do if you had unlimited capital based on the sales you generate.
You’re back where you want to be—growing your company—and you don't have to wonder how you will finance that growth!
The Holdback Process for Outstanding Invoices
Some of the day-to-day nuances of factoring must be clarified to Canadian businesses considering invoice finance for the first time.
One is the holdback. When you finance one or a number of invoices (and by the way, it's your choice), you typically receive 80-90% of the invoice value the same day. The remaining balance is held as a holdback or reserve and remitted to you when your client pays.
Cost Considerations
If one issue typically concerns the Canadian business borrower who is considering an accounts receivable financing strategy, it's the cost of the financing.
In Canada, that cost, on average, is typically in the 1-1.5%% range.
We must add that sometimes it's less, and sometimes it's more. Factors that decide your final pricing are the general health of your business, the size of your monthly A/R, and the overall quality of the customer base.
Who Can Benefit
Firms considering invoice finance are typically those growing too quickly and unable to achieve traditional bank financing.
Accounts receivable financing companies are crucial in providing quick funding and bridging cash flow gaps for these businesses. Alternatively, they may work through some business challenges, such as an off-year for financial results, etc.
Advantages Of Traditional Financing
One reason this method of business financing is growing in Canada is that facilities can be set up very quickly, with less focus than the bank on issues such as rations, shareholder equity, personal guarantees, etc.
Unlike asset-based lending, accounts receivable financing does not create debt. It is a non-dilutive approach, making it a favourable option for businesses seeking quick cash flow solutions without impacting their creditworthiness.
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Confidential Accounts Receivable Financing with a Factoring Company
Is any one facility of this type better than the other? We think so and constantly recommend a confidential accounts receivable financing strategy.
This confidential, non-notification facility allows you to bill and collect your receivables, finance which ones you want when you want, and have no involvement or notification to your clients. Unfortunately, most facilities in Canada don't offer this type of financing.
KEY TAKEAWAYS
Conclusion
Accounts Receivable Financing revolutionizes how businesses manage their cash flow, offering a flexible and efficient alternative to conventional loans.
Call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor who can help you find the optimal facility that works for you in terms of benefits and day-to-day ease of management.
FAQ
How does Accounts Receivable Financing improve cash flow?
It converts unpaid invoices into immediate cash, bridging the gap between sales and customer payments.
Can Accounts Receivable Financing help my business grow?
Yes, providing quick access to working capital enables businesses to take on new opportunities and expand operations.
Is Accounts Receivable Financing suitable for small businesses?
Absolutely. It's particularly beneficial for those struggling with traditional bank financing options.
Does Accounts Receivable Financing affect my relationship with customers?
Not necessarily. Many providers offer confidential services, allowing you to maintain direct client relationships.
How quickly can I access funds through Accounts Receivable Financing?
Typically, you can receive funds within 24-48 hours of invoice approval, significantly faster than traditional loans.
What types of businesses are best suited for Accounts Receivable Financing?
B2B companies with creditworthy customers selling to companies and governments and having consistent invoicing practices often benefit most from this financing option.
How does Accounts Receivable Financing differ from a bank loan?
Unlike loans, A/R financing / receivable loans are based on your sales rather than your credit score, and it doesn't create debt on your balance sheet.
Are there any industry-specific variations of Accounts Receivable Financing?
Yes, some industries like healthcare and construction have specialized in invoice factoring A/R financing options tailored to their unique needs.
What happens if a customer doesn't pay their invoice?
This depends on whether you have a recourse or non-recourse agreement with the financing provider. Non-recourse agreements offer more protection.
Can I choose which invoices to finance?
Many providers offer flexibility in selecting which invoices to finance, allowing you to tailor the service to your needs.
What's the difference between Accounts Receivable Financing and factoring?
While often used interchangeably, A/R financing is broader and can include various methods of leveraging accounts receivables, while factoring specifically refers to selling invoices to a third party.
How does the cost of Accounts Receivable Financing compare to traditional loans?
A/R financing typically has higher fees than traditional loans but offers greater flexibility and faster access to funds. The cost is often justified by improved cash flow and growth opportunities.
Can Accounts Receivable Financing work alongside other financing methods?
Many businesses use A/R invoice financing and other financing methods to create a comprehensive funding strategy tailored to their specific needs.
ABOUT 7 PARK AVENUE FINANCIAL
7 Park Avenue Financial originates traditional and alternative financing and asset-based financial services providers that offer lease financing, cash flow and working capital financing, and business acquisition loans.
The company works closely with clients to develop key business strategies based on their unique needs. The company is committed to providing the highest level of customer service and innovation to help businesses succeed.
Combining our experience and solutions, we help our clients achieve profitable cash flow and debt financing and streamline the process with a full range of credit offerings.
' Canadian Business Financing With The Intelligent Use Of Experience '
STAN PROKOP 7 Park Avenue Financial/Copyright/2024
Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil