When Canadian business owners and financial mangers want to put an end to business financing challenges they are prepared to consider all alternatives. One of the most popular these days is accounts receivable financing via a confidential invoice finance facility. It only does one things for your company – it accelerates cash flow!
One of the other reasons that this type of financing gains in popularity every day is that allows you to increase your cash flow and working capital without having to consider additional equity arrangements into your company. Even more important is the fact that many business people miss the fact that an A/R finance strategy is not ‘ debt ‘ – you are simply monetizing your current assets, i.e. the accounts receivable, into immediate cash.
The concept is exceptionally simple, where it gets complicated we find is that clients don’t really understand some of the terminology, costs, and benefits of this type of financing. As we said, it couldn’t be simpler – you generate sales, and, via your receivables, sell those invoices, gaining immediate cash flow. Clients tell us it certainly is not unusual these days to have their A/R run anywhere from 30-90 days from a viewpoint of when they can expect payment from their customer.
So imagine how your firm would do if you have really unlimited capital based on the sales you generate. You’re back to where you want to be, growing your company, not wondering how you will finance that growth!
Some of the day to day nuances of factoring need to be clarified to Canadian businesses who are considering invoice finance for the first time. One is the holdback. When you finance one or a number of invoices (and by the way, it’s your choice) you receive typically 80-90% of the invoice value the same day. The remaining balance is held as a holdback or reserve and remitted to you when your client pays.
If one issue typically concerns the Canadian business borrower who is considering and accounts receivable financing strategy it’s the cost of the financing. In Canada that cost, on an average, is typically in the 2% range. We hasten to add that sometimes it’s less, and sometimes it’s more. Factors that decide your final pricing are the general health of your business, the size of your monthly A/R, and the overall quality of the customer base.
Firms considering invoice finance are typically those that are growing too quickly and are unable to achieve traditional bank financing. Alternatively they may be working their way through some business challenges, such as an off year for financial results, etc,
One reason this method of business financing is growing so quickly in Canada is the fact that facilities can be set up very quickly, with less focus than the bank on issues such as rations, shareholder equity, personal guarantees, etc.
Is any one facility of this type better than the other? We sure think so, that’s why we constantly are recommending a confidential accounts receivable financing strategy.
This allows you to bill and collect your own receivables, finance which ones you want when you want, and has no involvement or notification to your clients. Unfortunately the majority of facilities offered in Canada don’t offer this type of financing
So consider speaking to a trusted, credible and experienced Canadian business financing advisor who can work with you to get you the optimal facility that works for you from a viewpoint of benefits and day to day ease of management.