YOUR COMPANY IS LOOKING FOR AR FINANCE VIA RECEIVABLE FINANCING AND FACTOR FUNDING!
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Financing & Cash flow are the biggest issues facing business today
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Factor your financial worries away with the strategic assistance of factoring finance companies, transforming your business's cash flow dynamics and unlocking potential growth opportunities.
Struggling to secure traditional business financing? Factor your invoices and streamline your cash flow effortlessly.
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer FACTORING FINANCE & solutions that solve the issue of cash flow and working capital – Save time and focus on profits and business opportunities
Understanding Factoring Finance Companies in AR (A/R) Finance
AR (A/R) Finance is one method that Canadian business owners use to ensure they have the optimum level of accounts receivable and cash flow when bank financing isn't available.
Accounts receivable financing, also known as invoice factoring, is a key service offered by factoring finance companies. Factoring services are solutions that allow businesses to convert their receivables into immediate cash, enhancing their cash flow management.
Realizing the Value of Receivables
It doesn’t take long for Canadian businesses to realize that their receivables, particularly the total invoice value of these receivables, are in effect their funds that are sitting in someone else’s bank.
Understanding the invoice value is crucial for businesses to realize their potential funds, especially when managing outstanding invoices effectively can unlock the trapped funds in receivables. And trust us that the large corporations figured that out a long time ago - they invest thousands and millions of dollars in credit and collection departments to handle outstanding invoices and optimize the invoice value. We know, we’ve sat there!
Extending Credit Wisely
So how in fact does a firm extend credit in Canada, while at the same time minimizing the effect on working capital on a daily basis? It's essential for companies to compare factoring companies as part of their strategy to extend credit wisely, ensuring they choose the best option for their working capital needs.
Calculating Collection Period
One of the things you have to do in advance is to calculate your firms ' collection period. If you monitor this over time you will find that you have a strong sense
Understanding Financial Implications
Once you truly understand this calculation you will be in a position to understand the effects of increasing sales, taking on larger clients or projects, and knowing at the same time what it will cost you in financing costs and yes, even bad debt, as not all clients pay as we have found!
Seeking Expertise
Most business owners, particularly those in the SME sector don't often feel they have the tools or knowledge or expertise to calculate these types of 'what if ' scenarios. If that’s the case a business advisor, accountant, etc. can help you for minimal or no cost. It's all about putting the variables on the table and looking at them - they include things such as your projected increase in sales, your costs to deliver that product or service, the cost of financing expenses from your bank or financing company, and the cash flow that will come out of those increased sales.
Utilizing Invoice Factoring Company Services
How then can Canadian business utilize receivable financing, also called ‘factor funding’ to ensure they are masters in their kingdom - you know the kingdom we’re referring to, it’s the one where cash is king! It's crucial to choose the best factoring options and work with a reputable factoring company to maximize the benefits of receivable financing.
Accelerating Cash Flow with Invoice Factoring
AR Finance is a strategic financial solution that accelerates the flow of money in and out of Canadian businesses by providing them with immediate cash. This process involves selling outstanding invoices to a third-party company, enabling businesses to accelerate
Understanding Costs
The cost of factor funding, aka receivable finance, is a very misunderstood topic in Canada. A good start might be for you to calculate how much it costs you now to carry receivables. It's actually only three data points in your business - your annual sales, your a/r, and the amount you are paying your bank or financing company to carry that bank line or commercial receivables line of credit.
Comparing Costs
Let’s use a larger firm as an example - say it has 20 Million in sales, and they collect their money in 65 days. Let's say they are borrowing at the bank at 5%. Their total financing costs are 20M X 5% divided by 365 days in the year Times 65 days which is their collection period. Their cost to carry A/R is then 178,000.00.
Evaluating Alternatives
The cost to finance this a/r via factoring would be about 10k more a month, but the firm now has unlimited access to cash flow and working capital, is growing sales, and has maintained its 'cash is king' status with strong cash on hand.
Considerations for Decision Making
Is that good or bad, and how does it compare with factor costs. The key point here is that your DSO in effect becomes zero when it comes to receivables finance, as you generate cash immediately as you invoice. You then utilize that cash to generate more sales, turnover working capital faster, etc.
Factoring Costs
In Canada, as a general rule receivables are financed at a discount of 2% monthly. So you as a business owner have to take the time to re-do our calculations and determine your new cost of financing. You may be well surprised!
Key Takeaways
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Invoice Factoring: Convert outstanding invoices into immediate cash flow, fueling ongoing operations and growth initiatives without waiting for customer payments.
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Accounts Receivable Financing: Leverage your accounts receivable as collateral to access funding, ensuring smooth operations and timely payments to suppliers and employees.
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Cash Flow Management: Optimize the inflow and outflow of cash within your business, maintaining liquidity for day-to-day operations and strategic investments.
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Credit Risk Management: Assess and mitigate the risk associated with extending credit to customers, safeguarding your business's financial health and minimizing bad debt.
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Debt Collection: Streamline the process of collecting outstanding debts, improving cash flow and reducing the impact of late payments on your business's bottom line via competitive invoice factoring rates.
Conclusion
Call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor on how factor funding and receivable financing works, what type of facility works best (its confidential A/R finance) and how your firm can qualify immediately.
FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION
How can factoring finance companies help my business?
Factoring finance companies provide immediate cash flow by purchasing your outstanding invoices before customer invoice payments, enabling you to meet financial obligations and seize growth opportunities without waiting for customer payments.
Are factoring finance companies suitable for small businesses?
Yes, factoring finance companies cater to businesses of all sizes, offering flexible financing solutions tailored to your specific needs, whether you're a small startup or an established enterprise. Companies should compare factoring companies and their pricing services and coverage to choose the best factoring company most factoring companies differ in service and focus and factoring process. Superior customer service is always a factor to look for as well as straightforward factoring agreements.
What are the benefits of invoice factoring from a third party factoring company?
Invoice factoring accelerates cash flow, improves working capital, reduces the burden of accounts receivable management, and provides access to quick funding without incurring additional debt.
How does factoring finance differ from traditional bank loans?
Factoring finance via invoice factoring services focuses on leveraging your accounts receivable as collateral, providing immediate cash flow, whereas traditional bank loans often involve lengthy approval processes and stringent credit requirements.
Can factoring finance companies help with debt collection?
Yes, factoring finance companies often offer debt collection services as part of their comprehensive solutions, helping you streamline the process of recovering outstanding payments and maintaining a healthy cash flow. Full service factoring companies offer a variety of credit granting and collection assistance
What are the key differences between factoring and invoice financing?
Factoring involves the outright sale of invoices to a third party, while invoice financing uses invoices as collateral for a loan. Invoice factoring companies also typically provide credit management services. Factoring companies offer many miscellaneous services that benefit the borrower such as accounting software they utilize as well as non recourse receivables factoring.
How do factoring finance companies assess credit risk?
Factoring companies in Canada evaluate the creditworthiness of your customers, considering factors such as payment history, a review of the cash inflows in the business bank account, industry trends, and financial stability to mitigate the risk of non-payment for unpaid invoices outstanding.
What industries benefit the most from factoring finance?
Industries with long payment cycles, such as manufacturing, transportation/trucking companies/freight brokers, and staffing, often benefit greatly from factoring companies and their finance solutions due to the immediate cash flow it provides to support operations and growth.
