Streamline Your Cash Cycle: The Financing Receivables Advantage
Stan Prokop
Canadian Business Financing | Cash Flow Financing | Asset Based Lending | Equipment Finance | Lender Financing | Purchase Order Financing | Acquisition Financing | SAAS Financing | Acquisition Financing
YOUR COMPANY IS LOOKING FOR A/R FINANCING!
Canadian Accounts Receivable Financing Via Factoring Companies In Canada
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Financing & Cash flow are the biggest issues facing business today
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Financing receivables offers a powerful solution for businesses seeking to optimize cash flow and fuel growth without compromising their balance sheets.
Unlock your company's hidden cash potential - turn unpaid invoices into instant working capital!
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer 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”
RECEIVABLE FINANCING IN CANADA
Receivable finance solutions offered in Canada (there are several types) are a valuable strategy for companies looking for alternative finance solutions when traditional financing is unavailable.
Typically, when we talk about traditional financing, we talk about Canadian chartered banks, of course! The alternative - Factoring companies!
A/R Financing Is Not A Loan
So, what do the business owner and financial manager need to know regarding invoice financing and complementary cash flow strategies?
For a starter, A/R financing is not a loan per se; your firm is simply monetizing one of the main current assets on your balance sheet. So, while some may term it a ' receivables loan,' it is not truly a loan per se.
THE NEW WORLD OF ALTERNATIVE FINANCE
Years ago, we venture to say that many business owners were unaware of alternative finance strategies.
That, of course, also means that many of the benefits are derived from factoring or Confidential Receivable Finance finance solutions. At 7 Park Avenue Financial, we always strive to ensure our clients understand the various options available to meet their unique needs.
Our Canadian banks, of course, do not tout the benefits of accounts receivable financing/factoring if only because they do not offer this type of financing. That has sometimes created an image that firms utilizing factoring finance are financially challenged.
That's very wrong - in fact, business folks might be surprised to know that some of the largest companies in Canada utilize this for cash flow financing - in some cases, they call it by a fancier name - Securitization.
Alternative finance solutions almost always cost more. It is essential to understand, though, that actual factoring of invoices tends not to be priced at an interest rate, as opposed to a selling cost of margin reduction - typically 1-2% for companies with good-paying clients.
AN EXAMPLE OF A/R FINANCING / FACTORING
How Does Accounts Receivable Financing Work?
Example - On a $ 10,000 invoice, you would have a cost of $200.00 to finance the invoice. The benefit? Cash is available immediately after you invoice and ship / provide your service.
So our takeaway here, of course, is that a/r finance pricing is, in fact, a huge stumbling block to many clients, but only when they don't understand it.
A/R Financing only works when you have sales, so firms that are in severe distress or have seriously declining sales are rarely encouraged to utilize this method of cash flow finance.
Receivable financing solutions typically only work for business-to-business firms, aka 'B2B'. Firms that sell on credit or cash to consumers are best suited to working capital cash flow loans that monetize future sales based on your historical sales levels. For example companies in the retail sector can typically achieve a working capital loan of 10-20% of their annual sales.
As we have seen, it is easy for clients to misunderstand the ' fee ' in factoring - in our example, 200 dollars, and confuse that with an invoice financing interest rate, which it is not, in the concept of invoice purchasing that is important for business owners to understand.
What else is important in the invoice financing area? Simply choose a partner firm to access your financing needs.
AN UNCOMMON TAKE ON A/R FINANCING
Reverse factoring, a lesser-known form of receivables financing, can strengthen supply chain relationships. Large companies use their credit standing to help smaller suppliers access low-cost financing, fostering loyalty and ensuring timely deliveries.
WHAT IS THE BEST TYPE OF RECEIVABLE FINANCE / INVOICE FINANCING?
If you are looking for straight goods, which method of invoice receivable finance works best (We favour confidential A/R finance), how is pricing determined, and how does the facility work daily? There are different types of ' invoice financing ', and business owners should investigate which one will work for their firm.
KEY TAKEAWAYS
CONCLUSION
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In Canada, financing invoices is simple. You only need to set up facilities to convert your sales into immediate cash flow.
Companies should have a respectable ' gross margin' to absorb the 1-2% fee charged by factoring companies. Cash received from the financing is typically used to fund daily operations, not long-term investments in your business.
Working capital loans are debt that is supported by your cash flow - while monetizing your invoices is simply cash-flowing your sales with no corresponding debt on the balance sheet - That's a good thing.
Factoring Financing, i.e. factoring with receivables, is a valuable working capital tool. You want the ability to work with the best factoring companies.
Call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you in crafting the facility that meets your working capital financing needs.
FAQ
How does financing receivables improve my company's cash flow?
Financing receivables converts your unpaid invoices into immediate cash, bridging the gap between sales and payment collection. This accelerates your cash flow, providing readily available funds for operations, growth initiatives, or unexpected expenses.
Can financing receivables help my business expand without taking on traditional debt?
Financing receivables allows you to access additional working capital based on your sales volume rather than taking on fixed-term loans. This enables you to fund expansion projects or seize new opportunities without increasing your long-term debt obligations.
What advantages do financing receivables offer over traditional bank loans?
Financing receivables provides more flexibility than traditional bank loans, as funding typically grows with your sales. It also focuses on your customer's creditworthiness rather than your own, making it accessible to businesses with limited credit history or collateral.
How can financing receivables help manage seasonal fluctuations in my business?
By providing quick access to cash based on your outstanding invoices, financing receivables helps smooth out cash flow during slow seasons or periods of rapid growth. This ensures you can meet payroll, purchase inventory, or cover other expenses even when customer payments are delayed.
Will financing receivables help reduce the time and resources my company spends on collections?
Many financing receivables solutions include professional collection services, allowing you to outsource this time-consuming task. This frees up your staff to focus on core business activities while ensuring timely follow-up on outstanding payments. You can also choose CONFIDENTIAL INVOICE FINANCING, allowing you to bill and collect your own receivables.
What types of businesses typically use financing receivables?
Financing receivables is commonly used by B2B companies across various industries, including manufacturing, wholesale, distribution, services, and staffing agencies. It's particularly beneficial for businesses with longer payment terms or those experiencing rapid growth. Under asset based lending solutions a company can finance both receivables and inventory in one facility.
Is there a minimum invoice amount or business size required to finance receivables?
Requirements vary among providers, but many offer solutions for small to medium-sized businesses. Some may have minimum monthly sales or invoice amounts, while others specialize in working with startups or specific industries.
How quickly can I receive funds through financing receivables?
The funding speed depends on the specific financing solution and provider. Some invoice factoring companies can provide funds within 24-48 hours of invoice submission, while other receivables financing options may take a few days to set up initially with the financing company.
Do I need to finance all my accounts receivables, or can I choose specific invoices?
Many financing receivables solutions offer flexibility in choosing which invoices to finance. This allows you to tailor the funding to your specific needs, whether you want to finance all eligible invoices or select specific customers or invoices.
What happens if my customer doesn't pay the financed invoice?
The consequences depend on whether you've chosen recourse or non-recourse financing for your company's accounts receivable.
With recourse financing, you're responsible for repaying the advance if your customer defaults. Non-recourse financing transfers this risk to the provider, offering additional protection against bad debt.
What's the difference between invoice factoring and accounts receivable financing?
Invoice factoring involves selling your invoices on the company's balance sheet to a factoring company at a discount in exchange for immediate cash. The factoring company then collects payment directly from your customers. On the other hand, accounts receivable financing/invoice discounting uses your invoices as collateral for a line of credit. You maintain control of collections and customer relationships while accessing a percentage of your receivables' value as a revolving credit line.
How does the cost of financing receivables compare to other funding options?
The cost of financing receivables typically includes a factor rate or interest rate plus potential fees. While these rates may be higher than traditional bank loans, the increased cash flow and flexibility often outweigh the costs for many businesses. Additionally, financing receivables can be more cost-effective than alternatives like merchant cash advances or high-interest business credit cards.
Can financing receivables help improve my business's credit profile?
Yes, receivables finance can indirectly improve your business credit profile by providing the working capital needed to pay suppliers on time and manage cash flow effectively. Some financing providers may report your payment history to business credit bureaus, potentially helping to build your credit score. Moreover, you may improve your overall debt-to-income ratio by reducing your reliance on other forms of credit.
What is supply chain finance? Supply chain finance is a set of solutions that optimizes cash flow by allowing businesses to lengthen their payment terms to their suppliers while providing the option for their large and SME suppliers to get paid early. This innovative financing method involves a financial institution acting as an intermediary between a buyer and a seller. The buyer approves supplier invoices for financing, which allows suppliers to receive early payment from the financial institution at a discount. Meanwhile, the buyer can extend their payment terms, improving their working capital position. This approach helps strengthen the financial health of the entire supply chain by improving cash flow for both buyers and suppliers. What is trade credit insurance? Trade credit insurance, also known as accounts receivable insurance or credit insurance, is a risk management tool that protects businesses against non-payment of commercial debt. It covers losses from outstanding customer debts, typically due to customer insolvency, bankruptcy, or protracted default. By transferring the risk of non-payment to the insurer, companies can confidently extend credit to their customers, potentially increasing sales and entering new markets. Trade credit insurance also often includes services such as credit information and debt collection, helping businesses make informed decisions about credit limits and terms for their customers. This financial product is valuable for international trade companies or industries with long payment cycles or high credit risks. What is good working capital management? Good working capital management involves efficiently overseeing and utilizing a company's short-term assets and liabilities to ensure optimal operational efficiency and financial health. It focuses on maintaining sufficient cash flow to meet short-term obligations and operational needs while maximizing profitability. Key components of effective working capital management include: 1. Optimizing inventory levels to balance customer demand with storage costs 2. Efficiently managing accounts receivable to accelerate cash inflows 3. Strategically handling accounts payable to preserve cash without damaging supplier relationships 4. Maintaining adequate cash reserves for unexpected expenses or opportunities 5. Utilizing short-term financing options when necessary to bridge cash flow gaps 6. Implementing robust forecasting and monitoring systems to anticipate working capital needs Good working capital management results in improved liquidity, increased profitability, and enhanced business value. It allows companies to navigate seasonal fluctuations, invest in growth opportunities, and weather economic uncertainties more effectively. By striking the right balance between having too much working capital (which may indicate underutilized resources) and too little (which could lead to financial distress), businesses can achieve optimal operational and financial performance.
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' 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