We run into far too many clients these days that are utilizing accounts receivable finance in Canada because they feel they have to… as opposed to wanting to .
Lets dispel some of the myths around factoring in Canada, additionally we’ll talk about what we feel is the best type of facility (one you haven’t heard of we think!). Oh yes, and we’ll address the cost of this financing also.
Most Canadian business owners and financial managers would not describe themselves as ‘ bankers ‘ if we asked them what they do for a living. However, welcome to the inner circle of Canadian banking, because when you think about it you’re moonlighting as a banker . Why? … Simply because you’re carrying a higher level of receivables than you probably want to. In effect you’re the bank for your customers payables! And you don’t even get the bank pension!
It’s around that concept that account receivable finance facilities are built in Canada. Your ability to convert A/R into cash flow for your own firm is critical. Naturally every firm that sells on credit has to make an investment in A/R – Factoring in Canada helps you eliminate or in effect finance that investment- Without external debt.
Although Canadian business often feels they are paying too much for factoring in Canada (rates tend to be in the 1-3% range on a 30 day basis the reality is that you are missing on the ability to take advantage of all funds that are in effect locked up in your A/R. And given that your terms are probably 30 days and most clients tend to pay between 60 and 90 days these days you’re clearly tripling your inability to use cash flow to grown and run you business.
That’s where A/R finance comes in. Your ability to receive cash, the same day as you generate sales turns your firm into a commercial ATM machine. The continual flow of cash flow and working capital into your business as you finance your A/R as needed allows for more growth and more profits. Many firms miss out on the fact that a significant portion of the cost of factoring can in fact be offset, sometimes in entirety, by your ability to now purchase more effectively and take supplier discounts, thereby enhancing your relationship with key or valued suppliers.
Whats the best type of factoring in Canada .We think it’s one you may not have heard of – it’s called C I D… standing for confidential invoice discounting. Under confidential invoice discounting guess who is control of the program – You!
You bill and collect your own receivables, and with the right type of facility set up you are in a position to not be locked in to any long term contract or breakage fees. That’s important, as a large part of the industry in Canada, (many of which are U.S. and U.K. players) would prefer to ‘ lock you in ‘. That’s not what the right C I D factoring in Canada facility is about.
The benefits of accounts receivable finance are significant… the weight of evidence in the constant interplay for working capital now puts you in the driver’s seat. You have total control of your cash flow, and because it’s a monetizing of your A/R you haven’t incurred one dollar of debt on your balance sheet. That’s a true business ‘ power punch ‘.
If cash flow and working capital is a constant worry for your firm speak to a trusted, credible an experienced Canadian business financing advisor about moving forward with the right a/r financing facility .. on your terms.