Warning! Are Traditional Factoring Program Companies In Canada Right For Your AR Finance Challenge?

There’s nothing like a ‘ Danger Ahead’ sign up the road to catch a Canadian business owners attention. That’s why we’re pointing out a number of things today with respect to factoring companies in Canada, how they work, and why ar (accounts receivable) finance may be the best thing that ever happened to you… or the worst. Talk about a balanced perspective.

More often than not when Canadian firms look to AR Finance as an alternative it’s out of an immediate need, often almost survival. They might be finding themselves in a number of positions, including having to restructure their firm or the debt, downsizing, or addressing the worst and best problem of all – Hyper growth with strong revenue increases.

From our vantage point factoring companies in Canada are often addressing ‘ the short term fix’ stage. The 3 most common situations that caused these challenges often are poor management (that might be you unfortunately) being undercapitalized, and finally, over leveraged.

So how does a traditional factoring program work – and what’s the good and bad in all that?

Simply speaking it’s an immediate solution that makes cash available for your firm – at a time when pretty well no one else will give you the amount you need, if they’ll give you any at all

When you implement the solution you’re in a positional albeit at a cost, to grow your business again, pay and hire people, and take supplier discounts and price advantages. And all of this is done without debt, and diluting the ownership in your firm.

So, lets recap how things work with an emphasis on pointing out the good and somewhat ‘ unfavorably viewed ‘ aspects of this method of Canadian business financing.

Here’s how it works: You typically receive approx 90% of all invoices you submit, and you can submit pretty well as often as you like, even daily. Bottom line, as you sell you get cash. Same day.

So what could possibly be the downside of this ‘ traditional’ factoring? The daily mechanics are not always viewed positively by the business owner; in some cases credit limits are set on your accounts, and in the majority of cases collection services are provided by the factoring firm. Generally the cost of the financing is in the 2% range, meaning that if you finance a $ 10,000.00 invoice for 30 days you have a financing charge of $ 200.00. Is that a lot? We’ll let you decide once you benchmark it against the advantages of your AR Program.

Is there a better way to enter into the right program with factoring companies in Canada? One method is the confidential invoice financing facility. Here you get all the benefits of AR Finance, but at the same time you are billing and collecting your own receivables.

How do you know when you’re ready to consider such a program? A few basic ongoing calculations of your sales to receivables, collections and inventory turnover analysis should allow you to determine whether you have a financing need that might not be served by the traditional chartered bank solution.

And remember this type of financing can often be bundled together in an asset based line of credit that margins both receivables and inventory.

Speak to a trusted, credible and experienced Canadian business financing advisor – get the straight goods on those warning signs.