Receivable finance in Canada. The business battlefield is littered with firms who either don’t understand business AR financing from a pricing or a mechanics perspective, or, heaven forbid, have hooked themselves up with the wrong partner firm.
It’s that proverbial fork in the road, and let’s assumes the Canadian business owner or financial manager has taken it – he or she has opted to solve cash flow problems that have hampered growth and entered into an invoice financing facility.
But were the costs of the facility properly addressed, and are you working with the right lender ?Those two issues alone , when properly solved, or addressed, give you working capital and cash flow piece of mind.
You can make a huge mistake in receivable finance in Canada by not taking a bit of time to, as we say ‘ peel back the onion ‘ and ensure you understand that cash costs and mechanics of business AR financing.
So what issues should you consider when picking the right finance firm for your AR financing? Just like any other business or consumer contract you might look at you’ll find that you need to address ‘ the fine print ‘, which typically isnt the favorite thing we like to do, right?
Some of those miscellaneous charges can add up- for example some finance firms might want you to guarantee a minimum amount of financing business during any period – that might be a month, quarter, etc. A fee might be assessed if you have lower turnover.
The actual ‘ interest ‘ or financing charge is a subject of great discussion when we talk to clients about A/R finance. In general terms the amount of financing you do, the quality of your customer base, and to a certain degree the overall financial strength of your firm play a key role in pricing.
But business owners will find that the industry does in fact place a huge amount of importance on your A/R portfolio itself, not your own firms general credit worthiness. And thats a good thing.
Also watch for the miscellaneous items that can add up, they include wire transfer charges, service fees, admin fees, – OMG it’s almost as if we’re banking in Canada !
If you’re dealing with the right firm you’ll find that you can finance all your Canadian and U.S. receivables without any issue. We do point out to clients though that if your receivables have a foreign component you may require some sort of credit insurance – which by the way isnt a bad thing anyway.
In a perfect world you want to be able to move either to another A/R finance firm, or to a bank or other lender without penalty. Customers have a bit more negotiating power than they know when addressing this issue, and it should clearly be discussed up front at the time of entering into the facility.
Finally, make sure you understand the differences between a bank facility, a working capital term loan, and invoice financing, aka ‘ Receivable Finance ‘. The characteristics of a business AR financing facility are different – it’s not a loan, its not a collateralized facility such as with a bank, its simply the ongoing sale of your invoice sales as you generate them, with the option of financing which sales you wish when you wish. It’s simple as that.
Oh and by the way, were all for minding our own business, so be sure to consider a facility that allows you to bill and collect your own a/r without notification to suppliers, clients , etc . Its our absolute recommended facility .
So is this method of Canadian business financing the answer to your current and future cash flow problems? As we said, it can be, if you take some time to master some of those tricks of the trade.
Speak to a trusted, credible and experienced Canadian business financing advisor today on how you can best understand and utilized business AR financing.