What If Accounts Receivable Finance Was the Perfect Answer to Your Cash Flow Financing?

A tale of two worlds – one in which you have unlimited cash flow or one in which you had day to day cash flow challenges that hamper your ability to grow and manage your business. A cash flow financing solution could well be the solution to all your problems.

Canadian business owners and financial managers face, on a daily basis real world cash flow challenges. Lets look at an example at why accounts receivable finance can be your holy grail of working capital financing. Cash flow financing goes by a number of different names in Canada that is part of the confusion we are always trying to wade through on our client’s behalf – various terms apply to this type of business financing. They include: factoring, invoice, discounting, A/R financing, etc. Depending on how you transaction is structured and who you are dealing with is really the key issue, not what the financing is called.

Clients always want to know if they are a candidate for this type of business financing. There are some perfect candidates, so let’s look at a profile or two in order that you can determine if you fit. Generally you will have accounts receivable that pay fairly regularly but are on occasion slow – your overall bad debt experience has probably been quite satisfactory. Your invoice and stated terms for your customers is 30 days, but guess what, most of them seem to be paying in 60 and 90 days – that definitely seems to be the trend of clients we talk to.

Does size count – In cash flow financing it really doesn’t – speaking in general terms if you have at least $ 50,000 of invoices a month you are a candidate for accounts receivable finance. The reality is that corporations with many millions of dollars in receivables actually utilize this form of financing also.

We hasten to say that in most instances the size of your facility will affect your overall pricing. In our experience you can potentially reduce the cost of your accounts receivable finance facility by close to 1% per month if you have a large facility. However, we spend many hours and many meetings educating Canadian business on factoring pricing, which is grossly mis understood by most clients who look into this type of business financing.

So the bottom line is that you should not let your company size, or any other challenges you might be facing – (temporary financial losses, restructuring, etc) affect you ability to successfully achieve an accounts receivable finance strategy.

Many times the decision to consider cash flow financing of your receivables comes from directly related issues to collections – in some cases the slow pay nature of your client may be affecting your ability to purchase inventory or meet payroll – those are some typical factors that drive customers toward factoring.

When you finance (in effect you are selling) your receivables under this type of facility you immediately receive an 80% advance on your invoice- that allows you to meet obligations and expand your business.

Most business owners know that if they had access to working capital they could readily grow their business – yet the traditional sources of business financing in Canada, i.e. chartered banks have made it challenging for firms to finance receivables in a manner that makes sense for the business owner. In some cases, as we noted, your business has or had challenges that prohibit you from temporarily sourcing cash flow financing.

Speak to a trusted, credible and experienced business advisor in this area – determine if accounts receivable finance is right for your firm, and focus on getting into a facility that meets your needs re day to day workings and cost.