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Canadian business owners and financial managers hear a lot about the business funding known as accounts receivable A/R financing. But occasionally when they try and understand how this financing works, what it costs, and what the benefits are they sometimes feel like they are going a bit ... crazy ! Is there a way to uncomplicate what frankly is a pretty simple method of funding your business? We think there is... all you need is some basic clarity! In fact one way to look at how this whole solution works is to sometimes put yourself into the position of the finance firm offering you this solution. At the essence of your transaction is the very simply concept of selling your sales, aka your ' a/r ' as you generate revenue to monetize that asset into immediate cash flow. Simple as that. So where do business owners and managers feel themselves going a bit ' crazy ' in trying to understand the process and interpret how this affects, and benefits their firm. In talking to clients here are the basic issues that typically need some good old fashioned clarity. They include: Understanding who in fact is using AR Finance and how long it's been around What is the pricing and how does that affect profits?
What facility size makes the most sense?
Are there any risks involved? Are some firms not able to use this financing? Who should I deal with to ensure this type of funding makes sense to my firm?
Most of our clients probably don't want to be guinea pigs when it comes to finding out they are the first to try something - with all the risks that come with that. So the good news is that Accounts receivable finance has been around for ... hundreds of years! Starting in Europe and moving to North America. Many simply call the industry ' factoring ' and in Latin that word means ' business doer '. Many early settlers to North America actually had their trips and early businesses financed by these ' factors '. So... bottom line, don't feel like you're being ' leading edge ' when it comes to new methods of financing your business - everyones doing it!
You only need to understand 3 simple concepts when it comes to cost of AR finance - they are: The discount percentage you are being offered
The amount that is advanced against your receivables (typically 90%)
The time it takes your client to pay
Once you understand those basics you're close to being an expert in receivable business funding.
The reality is that even one small sale could in fact be financed using this method, on a one time basis. But the closer reality is that typical facilities tend to be in the 100k per month range or higher. And the upper limit? Frankly Scarlett - there isn't one! We can make the statement that no additional risks in using this method of financing exist - any risk you currently take in extending credit to clients and monitoring their payments essentially stays the same. Customers that don't in fact like ' risk ' can opt to insure receivables. Any business that generates sales and sells on credit can in fact utilize factoring. The type of facility that we recommend most to clients is a confidential facility, which allows them to bill and collect their own sales - retaining full control and client contact. Still going crazy trying to understand factoring in Canada. Hopefully not! Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can clear the air. Quickly! Stan Prokop - founder of 7 Park Avenue Financial – http://www.7parkavenuefinancial.com Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 9 years - has completed in excess of 85 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing. Info re: Canadian business financing & contact : http://www.7parkavenuefinancial.com/business_funding_accounts_receivable_ar_finance.html
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business funding, accounts receivable, ar, finance,
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