We hear a lot these days about ‘ privacy’ and confidentiality in business these days. Well, here’s a twist on that.
How would you like to be the firm that has a confidential receivables financing facility in place when all your competitors and other firms are using traditional commercial finance factoring funding for their cash flow/working capital? Sounds interesting, right?
The hard reality these days it that financing receivables has emerged as an ‘ in fashion’ alternative to traditional financing that is often unavailable to thousands of medium and smaller businesses in Canada . (Oh and by the way, larger corporations use a subset of this financing also!)
We’re often amazed at how long some firms continue to use commercial finance factoring. There are all sorts of reasons why. One not so obvious one is that Canadian banks will often calculate interest on your firm’s entire line of approved credit, even if you are only using part of it. Seem a bit unfair don’t you think? Receivables financing strategy is the ultimate in ‘ paying for what you only use ‘.
We admit that’s one smaller point in why factoring agreements are in place by thousands of firms in Canada. The reality is that the total flexibility of this business financing solution is in fact what most businesses are interested in .If we had to be pinned down and identify one main reason why firms factor receivables it might just well be that you credit facility grows as you sales grow . So, bottom line, no more annual reviews or bulge crises when things don’t work out on a temporary basis. It’s the end of ‘ fighting fires’ in cash flow and working capital.
Financing receivables is a subset of asset based lending in Canada. Your firm sells its A/R either on a one time or ongoing basis. A hefty advance, usually 90% range, is made against that most valuable of current assets, your customer accounts. You have just generated instant cash flow. Once your client pays that ‘ holdback’ of 10% or so is refunded, less financing costs, to you, the client.
Those financing costs in Canada average anywhere from 1-3% a month, and quite frankly that middle range, i.e. 2% is a typical fee for each invoice based on a standard industry credit term of 30 days. Factors that affect your rate are size of your portfolio, your general overall financial condition, and the quality and size of your A/R and client base.
So, that privacy issue. What’s that all about ask clients. Well, our preference is for you to consider a confidential receivables financing alternative. Under this type of facility you bill and collect your own receivables, the bottom line your financing arrangements are known only to you and your receivable finance partner.
What an advantage! Simply because thousands of other firms, including your competitors who utilize commercial finance factoring have to go through a somewhat intrusive process of have traditional factor firms notify clients and are involved in collecting your accounts.
So, bottom line? If you don’t mind the whole world knowing about how you finance your firms business then consider a traditional commercial finance factoring strategy.
If on the alternative you want all the benefits, the same cost by the way, and want to run your own business from a cash flow and working capital standpoint… well, you know what to do! Speak to a trusted credible and experienced Canadian business financing advisor on how confidential financing of receivables can work for you!