YOU ARE LOOKING FOR AR FINANCE FACTOR RECEIVABLE FUNDING
A/R FACTORING IN CANADA
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Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
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Are you nuts? AR Finance... inexpensive? That was the reaction of one client when it came to discussing factor receivable funding in Canada for business.
AR FINANCE - THE MOST MISUNDERSTOOD BUSINESS FINANCING IN CANADA
Business owners and financial managers alike find themselves grappling with a common challenge: managing cash flow effectively via sales and the company's accounts receivable.
The heartbeat of any enterprise, cash flow ensures the day-to-day operations, fuels expansion plans, and ultimately secures the future of the business. Receivable Funding and Accounts Receivable (AR) Finance emerge as powerful, often overlooked or underutilized, capable of transforming the fortunes of Canadian businesses.
From the bustling streets of Toronto to the serene landscapes of Vancouver, the Canadian business landscape is teeming with potential, waiting to be harnessed.
From factoring companies and invoice financing solutions to asset-based lending, let 7 Park Avenue Financial show you the uses, benefits, and potential pitfalls.
From startups looking to scale up to established corporations seeking to optimize their working capital, this article offers a comprehensive guide to harnessing the power of AR Finance in the Canadian context.
The reality is that accounts receivable factoring in Canada is probably one of the most misunderstood areas of business financing when it comes to benefits, mechanics, and, as we said, cost.
WHY DOES A/R FINANCE MAKE SENSE FOR YOUR BUSINESS
We'll come to the issue of ' cost ' in a bit - let’s make sure we have got the benefits and mechanics under our belts first! AR Finance is Canada is, simply speaking, flexibility for short term working capital financing.
Its mechanics, though relatively simple, provide Canadian business owners and financial managers with a large measure of cash flow and working capital when it comes to new orders and contracts, increased need for working capital as inventories and receivables grow, and, simply speaking, keeping your daily operations running smoothly.
It's of course your A/R that provides the backbone behind the capital that you need, allowing you the leisure of actually, as they say, working on your business, not in your business... and boy is that a difference as we all know.
To understand how accounts receivable financing work it is important to consider the key benefit either overlooked or misunderstood is simply the fact that your factor receivable funding facility can grow as your business revenues grow.
And don’t forget, the key concept of accounts receivable financing in Canada is that your company isn’t taking on debt when you are factoring receivables you're simply monetizing one the most key assets of any business, your receivables.
A good analogy is that you are basically turning a Business To Business model into a cash business. As you sell and invoice you receive the cash the same day. Your facility of course fluctuates exactly similar to a business credit line, so receivable factoring for your business goes up and down every day, just like a bank line of credit. You are of course paying for only what you use.
6 KEY BENEFITS OF RECEIVABLE FINANCING / ACCOUNTS RECEIVABLE FINANCING ADVANTAGES
Many miscellaneous benefits accrue to your firm when you consider this method of accounts receivables financing. They include:
- Ability to only draw down the amount of financing you need - It's a pay-per-use method for working capital
- Same-day financing of your sales revenue
- Typical advances for A/R funding are 90% of your receivables
- A good facility will have per diem pricing
- Little or no emphasis on personal guarantees and no debt to the company's balance sheet
- All North American receivables can be financed, and foreign A/R is financed via credit insurance which can be easily arranged
So, back to our client who said ' ARE YOU NUTS ‘? As it pertains to AR costs of course!
PROFIT AND TURNOVER FOCUS
Your business should be focused on profit and turnover. By having a constant supply of working capital and access to cash flow you can increase sales and profits. Many firms also can achieve overhead reduction as a competent AR partner firm performs these services for you.
Many clients we have spoken to have had to turn away sales volumes and large contracts because of financing inability. We see that all the time. With AR Finance you are now in a position to accept unlimited orders and contracts.
THE CRITICAL VALUE OF SUPPLIER / VENDOR RELATIONSHIPS
Do you believe you could enhance relationships with key suppliers by paying those cash or taking their offered discounts? We sure think you could, and that’s a key benefit of factor receivable funding receivables financing. That type of business activity also enhances your overall firm’s commercial credit rating, which should be important to you in the long run.
Do you have a lot of time on your hands as you run your business? At 7 Park Avenue Financial, we sure don’t, and you'll find that you'll be focusing a lot less on seeking external financing if you've got a solid A/R receivables finance funding business solution in place.
KEY TAKEAWAYS
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Receivable Funding is a financial arrangement where businesses sell their accounts receivable (invoices) to a third party (a factor) at a discount. It enables businesses to get immediate cash, thus improving cash flow.
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Role of Creditworthiness: In this context, the creditworthiness of the business's customers is more crucial than that of the business itself. Factors assess the risk based on the customers' ability to pay the invoices.
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Advance Rates: This term refers to the percentage of the invoice value that the factor will advance to the business. Typically, this rate varies depending on the risk assessment and the quality of the receivables.
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Factoring Fees: Factors charge fees for their services, which can include a percentage of the invoice amount, administration fees, or additional charges for collection services.
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Recourse vs. Non-Recourse Factoring: In recourse factoring, the business must buy back any unpaid invoices. Non-recourse factoring, conversely, shifts the risk of non-payment to the factor, often at a higher cost.
CONCLUSION
Receivable Funding and AR Finance in Canada offer a transformative lifeline for businesses facing challenging financial hurdles.
In an era where cash flow is king, mastering Receivable Funding can be the key to unlocking your business's full financial potential.
So, expensive? We let clients decide on factoring account receivable solutions.
But if you want to see how the true cost of AR finance fits into your business call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor today for business loan solutions that work for your business.
FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION
What is Receivable Funding AR Finance?
Receivable Funding AR Finance is a financial service where businesses sell their accounts receivable (invoices) to a third-party factoring company at a discount for immediate cash, improving cash flow.
How does AR Financing benefit my business?
It provides quick access to working capital, enhances cash flow, reduces debt, and minimizes credit risk by transferring it to the financier.
What's the difference between recourse and non-recourse factoring?
In recourse factoring, the business is liable for unpaid invoices, while in non-recourse factoring, the financier assumes the risk of non-payment in working capital management
Are there any risks associated with Receivable Funding?
The primary risk involves the potential impact on customer relationships and dependency on the financier for cash flow. Clients using Confidential Receivable Financing can bill and collect their own receivables while achieving all the benefits of factoring solutions. Factoring fees and misc processing fees should also be reviewed.
How do I qualify for Receivable Funding AR Finance?
Qualification mainly depends on the creditworthiness of your customers and the quality of your receivables, rather than your business’s credit score or owner's personal score. The factoring company pays you for invoices the same day/next day.
Can start-ups utilize Receivable Funding AR Finance?
Yes, start-ups can use it, especially if they have invoices from creditworthy customers, making it an attractive receivables management financing option for new businesses needing cash flow for business accounts receivables.
Does Receivable Funding affect my business's balance sheet?
It can positively impact the balance sheet by converting receivables into immediate cash, thus improving the liquidity ratio and cash flow optimization - The term 'accounts receivable loan' ' or 'receivable loans ' is a misnomer as factoring is simply cash-flowing receivables.
What is the typical duration for a Receivable Funding agreement?
The duration varies but generally ranges from 30 to 90 days, depending on the invoice terms and when the customer pays and the agreement with the financier.
Are there any industries that particularly benefit from AR Finance?
Industries with long invoice payment cycles, like manufacturing, wholesale, and services, greatly benefit from AR Finance for companies wishing to collect payment earlier
Can Receivable Funding AR Finance be used for international transactions?
Yes, it can be used for international trade, though this involves more complexity due to varying international credit standards and exchange rates. In some cases, credit insurance might be adviseable in an a/r financing or asset based lending facility.
What are advance rates in Receivable Funding AR Finance?
Advance rates / Lender advances are the percentage of the invoice value that the financier provides upfront, usually ranging from 70% to 90% in the factoring small business financing solution
How does AR Finance differ from a traditional loan?
Unlike a traditional loan, AR Finance is not debt; it's an advance against your outstanding invoices. It doesn’t require collateral in the traditional sense.
What is the role of creditworthiness in Accounts Receivable Financing?
The focus of invoice factoring is on the creditworthiness of your customers, not your business, which means even businesses with less-than-perfect credit can access funding from accounts receivable financing companies
