Receivable financing problems grow out of the need for a businesses inability to grow cash flow as you run and grow your business. One strategy we recommend to clients is to grow cash flow and ‘ lose money’. That’s not a trick statement of course, and when business owners understand several forms of receivable finance
via invoice factoring can solve their challenge they want to know more. Let’s dig in!
A/R financing is a source of working capital – it’s not debt or a loan per se. In technical terms it’s the sale, or ongoing sale of your A/R generated out of your sales. That transaction is accomplished via a ‘ discount’ basis, typically in the 1 to 2 per cent per month basis if you’re on top of your collections. That’s where ‘ the loss’ comes in – it’s a financing cost but at the same time has delivered all the cash flow you need. Suffice to say your business should be able to handle that 1 or 2 per cent drop in gross margins with the result being – Cash Flow!
Invoice factoring allows you to run and grow your business, sell more by taking on being orders and contracts, and also has the unique ability to allow you to negotiate solid supplier prices. Why? Because you have the cash!!
This form of receivable finance is used by almost every industry in Canada. Even those Bay Street boys use it also – they apply a fancier name – Securitization.
What then are two major benefits of this method of Canadian business finance. It’s simply the ability to get a cash advance on your sales and of course the quick turnaround- typically 24 hours! Bottom line – pretty well same day funding
Yes factoring is more expensive than Canadian chartered bank financing = that’s the perception. But that must be balance against the hard reality that thousands of businesses do not qualify for all, or even some of the cash flow financing they need. And when you’re carrying a/r 60=90 days even that bank credit line doesn’t help.
The best form of account receivable cash flow financing? We call it Confidential A/R Finance – You bill and collect your own receivables, reaping the benefits and eliminating disclosure.
We’re open enough to say that the majority of firms who in fact entertain receivable factoring can’t get financing elsewhere, particularly at their bank. But don’t forget also that many instances involve firms such as yours who are growing too quickly or who have landed that ‘ big contract’ or order.
It’s at this time that business owners appreciate the fact that their net worth, profitability, debt coverage, or operating losses aren’t under the microscope anymore. And your firm is free to explore other methods of debt financing outside your A/R assets.
Speak to a trusted, credible and experienced Canadian business financing advisor with a track record of success in this key area of Canadian corporate finance.
Stan Prokop is a Canadian business financing advisor who specializes in cash flow and debt financing solutions.