‘Whats best type of business financing company for my firm’ often ask our clients when they consider AR (A/R) financing and factoring of receivables. We believe strongly its all about the partner, as much as the facility arrangements and we think we can show you why.
A/R (AR) financing companies in Canada tend to be specialized focused niche lenders in the Canadian business landscape. Unlike our friends in the U.S. these firms tend to be non bank independent finance firms, Canadian, U.S, or U.K. based with respect to ownership.
This type of business finance company has one focus, advancing you cash and working capital on your AR (A/R) similar to a line of credit. The funds you can obtain are unlimited based on all your eligible receivables. ( In general receivable financing works for all receivables under 90 days old, as many clients think they are able to finance a receivable only immediately after it is generated , which is not the case by the way.
So could the right business finance company for the factoring of receivables actually be a bank. There are 1 or 2 players in the Canadian banking landscape that do in fact offer receivable finance, similar to a factoring model, however on a broadly speaking basis we can categorically state that banks don’t finance receivables under the invoice discounting model that you are probably looking for .
We guess that anything is possible and one day we might see the banks gravitating to this type of finance… It certainly might be good from a rate and competition basis.
So we have determined that your search for the right firm re factoring receivables should focus on a specialist firm offering the type of facility you are looking for. But do you as a Canadian business owner or financial manager actually know the best facility when you meet it?!
Let’s walk you through what we consider the key issues in finding the ‘ perfect ‘AR financing facility in Canada. First of all you want to ensure your partner firm can satisfy your facility size – some firms are very small and have limited capital themselves! which we think is something clients don’t often consider. Other key issues are as follow: facility limit, your ability to finance all your receivables, as certain companies impose restrictions on either the total amount for any one of your customers, and believe it or not some firms actually don’t like government receivables for some legal and technical issues around their security.
Two other factors to consider is how clearly you understand the advance formula under which you will draw on the facility… and oh yes, did we forget to mention pricing ? That’s a tongue in cheek comment of course as the majority of clients we speak to seem totally focused only on pricing, and not the ten or so other issues they should be considering.
Pricing varies significantly in Canada… anywhere from 1-3% of each invoice for a 30 day period. Rates are determined by overall facility size, the quality of your A/R and the number of days it takes your clients to pay.
Whats the optimal facility in Canada for factoring receivables? For us its ‘C I D’, confidential invoice discounting or financing. This allows you to bill and collect your funds without any notice to your customer. This type of facility is perfect for your day to day operations.
In summary, of course you’re the one that will make the final call on the type of facility that makes sense for your firm when it comes to cash flowing your A/R.
Consider also speaking to a trusted, credible and experienced Canadian business financing advisor who can navigate the waters of receivable financing for you on issues such as borrowing formulas, rats, terms and conditions, and your ability to improve on these factors.