The other day, we encountered a great term regarding business financing – ‘ expansionary finance. ‘ Is it just us, or does this term perfectly cover off-factoring and receivables financing? Three key issues often arise when Canadian business owners and financial managers consider this type of financing. What are those three issues? They are the total cost of this type of financing, the associated rates, and probably most importantly, what kind of firm offers the best facility to match your company’s specific needs.
Let’s learn and cover those issues, which will allow you to get more comfortable, we think, with this type of Canadian business financing. So, why should you even be considering receivables factoring? Simply because it has become common for Canadian businesses to cash flow their accounts receivable and generate working capital based on their policy of extending credit terms to their customers.
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And, as most business owners know, sales do not equal cash flow. When business financing of your A/R is unavailable from your bank, an independent financial firm offering invoice financing is a logical place to turn to. But what does this financing cost, and who offers it? An even better question… ‘How do you pick the best factoring partner? In Canada, the financing and factoring of A/R vary widely. As a general rule, we can say the Cost is between 1-3% per month based on the size of the facility, your overall financial condition, and, most importantly, whether you have sought out and picked the finance firm that best suits your needs.
Let’s clarify our comment on your overall financial condition. Receivable financing places much less emphasis on your firm’s overall financial health—in fact, many Canadian firms that utilize this type of financing are in stages of turnaround, high growth, temporary financial losses, etc. So don’t despair that your firm isn’t eligible. But, as we said, your client base, the size of your A/R portfolio every month, and some other factors will dictate your overall pricing.
Frankly, the best costs in factoring finance in Canada start to be achieved when your monthly financing capability for A/R is greater than 250k. Is there a ceiling on the number of facilities? Not to mention facilities that make millions of dollars every month, every day in Canada. Clients often ask about our favorite, most recommended type of facility. That’s a simple one – called C I D – which stands for confidential invoice discounting, allowing you to control billing and collect your a/r without any notification to clients that comes with the U.S. and U.K. versions of a/r finance.
Remember that when you address the always top-of-the-list issue with firms such as yourself, ‘ Cost, ‘you must factor in things you might never have thought about. They include your ability to grow your business and generate more profits simply because you now have the capital to do so, albeit at a higher cost. And couldn’t you offset some of the Cost of factoring by taking discounts with your suppliers (and improving relations with them along the way!) and purchasing more effectively with your newfound working capital? So, in summary, if you need a financing partner when you are considering receivable management and financing solutions, seek out and speak to a trusted, credible, and experienced Canadian business financing advisor who will ensure your Cost and partnership with your factoring firm is focused on a mutually beneficial relationship for financing success.
Stan Prokop – founder of 7 Park Avenue Financial – http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies, specializing in working capital, cash flow, and asset-based financing. In business 7 years – has completed more than 50 Million $$ of financing for Canadian corporations.Info re: Canadian business financing & contact details:
http://www.7parkavenuefinancial.com/factoring_receivables_invoice_rates_cost_financing.html
