YOUR COMPANY IS LOOKING FOR FACTORING!
Invoice Factoring For The Balance Sheet
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Financing & Cash flow are the biggest issues facing business today
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Receivable financing transforms outstanding invoices into immediate working capital, offering a lifeline for businesses aiming to sustain and expand operations.
Struggling with slow-paying customers? Unlock your cash flow with receivable financing—fast, flexible, and designed for your business growth.
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer RECEIVABLE FINANCING solutions that solve the issue of cash flow and working capital – Save time and focus on profits and business opportunities
Unlock Hidden Cash: The Power of Receivable Financing
INTRODUCTION
Struggling to cover payroll or meet upcoming expenses because customers are slow to pay? Receivable financing can be the answer. A/R Financing unlocks the cash in the receivables you carry as it increases cash flow via leveraging your receivables.
By receiving early payment on invoices that customers have not yet paid your working capital position is improved, allowing your business to grow and profile while remaining stable financially.
When the Canadian business owner or financial manager wants to be more effective with their accounts receivable AR Finance strategy experts will tell you that it comes down to understanding 3 basic concepts around the process known as factoring.
What are they? They are not as complicated as you might think. Let's recap them and show you how this method of business financing, aka ' receivable financing/factoring allows you to leapfrog financial challenges that seemed like huge barriers in the past.
THE 3 CRITICAL CONCEPTS IN ACCOUNTS RECEIVABLE FINANCE SOLUTIONS
So back to those three critical concepts - they are as follows:
1. All borrowing under this facility is based on the value of your accounts receivable, and typical borrowing limits are 90% of all A/R under 90 days old
2. Factoring finance is not debt and it’s not managed in the way that a Canadian chartered bank would monetize its accounts receivable
3. The way to win when you have a finance facility such as this is to understand the relationship between all 3 parties to the transaction - your firm, your client and your finance factor partner. Putting the right type of facility in place is what allows you to increase cash flow.
WHAT AMOUNT OF FUNDS ARE ADVANCED IN THE A/R FINANCE PROCESS?
It's also critical to understand what amount of your sales is eligible when you consider this method of financing. We've previously referenced that you typically can borrow up to 90% of your total A/R - and we remind clients that typically a Canadian chartered bank would margin your facility at only 75% - so you are already ahead of the game!
PICKING THE RIGHT AR FACTORING COMPANY IS CRITICAL
If you are working with the right partner firm you should be in a position to finance all North American receivables. The challenge of non-North American A/R, i.e. foreign sales typically can be solved by putting a credit insurance policy in place. There are a solid handful of credit insurance firms in Canada that will assist you in ensuring your sales, thereby making them easier to finance.
On occasion, it may be more difficult to finance government sales due to the government's position around recognizing this type of financing.
When you enter into a factoring facility its critical that your finance firm understands your day-to-day operations, specifically as they related to your historical bad debt experience, customer returns, etc. This entire area is viewed as ' dilution ' by your finance firm, and they want to simply understand the true value and quality of your a/r .. so they can finance the maximum for your company.
THE COST OF RECEIVABLE FINANCING
Cost is always critical when it comes to entering into any business financing facility - whether that be term debt, loans, or, in our case today, monetization of assets. While factoring has a reputation for being expensive financing this is not necessarily true.
At the end of the day costs involved in accounts receivable factoring ( the factoring fee is in the 1.5-2% range ) must be viewed as your trade-off to more liquidity, generating more sales more often, and rationalizing that you might not be able to get the same amount of capital elsewhere. The process is not a business loan, but a solution that allows a company to sell its accounts receivable as it generates cash for immediate sales.
KEY TAKEAWAYS
Unlocking Cash Flow: Receivable financing provides immediate access to cash from unpaid invoices, improving business liquidity via an accounts receivable financing agreement
Improved Cash Flow Management: Predictable cash flow allows for better financial planning and avoids disruptions.
Focus on Growth: With cash flow secured, businesses can invest in expansion, inventory, or marketing.
Flexible Funding Option: Suitable for businesses of various sizes and credit histories.
Faster Payment Terms: May incentivize customers to pay invoices sooner to avoid factoring fees.
CONCLUSION
Call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you in ensuring you’ve got our 3 concepts in working capital invoice factoring and accounts receivable financing solutions nailed down properly!
FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION
How does accounts receivable financing work?
Receivable financing allows you to sell your unpaid invoices to a lender at a discount. The lender advances you a portion of the invoice value upfront, typically 70-90%, and collects payment from your customer. Those are the main accounts receivable financing advantages . Once your customer settles the invoice, you receive the remaining amount minus the lender's fees from accounts receivable financing companies.
Will receivable financing hurt my credit score?
Receivable financing typically doesn't directly impact your credit score. However, some lenders may perform a credit check during the application process, which could cause a minor temporary dip.
What are the benefits of receivable financing?
Receivable financing offers several advantages, including improved cash flow, faster access to working capital, increased flexibility to manage expenses, and the ability to grow your business without waiting for customer payments.
Are there any drawbacks to receivables financing?
The main drawbacks of receivables financing are the fees associated with the service, which can vary depending on the lender and invoice amount. Additionally, you may give up some control over your customer relationships depending on the financing type.
Is receivable financing right for my business?
Receivable financing can be a valuable tool for businesses with a consistent flow of invoices and slow-paying customers and related accounts receivables . It's essential to evaluate your specific needs and compare financing options to determine if it's the right fit.
What are some alternatives to receivable financing?
Some alternatives include a business line of credit, invoice factoring, or merchant cash advances. Each option has its own set of pros and cons.
What are the types of accounts receivable financing?
There are various types of accounts receivable financing available that provide businesses with immediate cash flow by utilizing outstanding invoices. Here's a brief overview of some common options:
Factoring: Businesses sell their accounts receivable to a factor at a discount, receiving an upfront cash advance while the factor handles customer payment collection.
Asset-Based Lending (ABL): This method uses accounts receivable as collateral for a line of credit, allowing businesses to draw funds as needed and pay interest on the amount used.
Invoice Discounting: Similar to factoring but businesses retain control over collecting payments. They receive an upfront loan based on the invoice value and repay it, along with fees and interest, once the customer pays.
Supply Chain Finance: Known as reverse factoring, this involves collaboration between buyers, suppliers, and financial institutions, where the buyer's bank pays suppliers early at a discount, and the buyer later repays the bank.
