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Canadian AR (A/R) Finance Exposed – How Receivables Factoring Companies Invoice Finance

Guest post by: Stan Prokop

Article Overview: Information on AR ( A/R ) Finance in Canada – How receivables factoring works and what makes the best type of invoice finance facility re price and terms.

Canadian AR (A/R) Finance Exposed – How Receivables Factoring Companies Invoice Finance

Laid open to view. That's a solid definition for ' exposed '. It almost sounds like a steamy spy novel..! Well... perhaps not as exciting as that... but lets take the covers off A/R finance in Canada. How does receivables factoring and invoice finance work and another thing... didn't we hear it was expensive..?????



It's our observations that usually after Canadian business owners and financial managers understand how ar ( a/r ) finance works that they immediately focus in on trying to understand how they can achieve the benefits of receivables factoring , while at the same time reducing the cost . In years gone by the perception of factoring was that it was akin to the same negative perception we give to unscrupulous car dealers.



Bottom line? Things have changed, and invoice financing is powering, yes we say powering! thousands of companies all across Canada.



So, back to pricing - we're going to expose some of the key fundamentals around this type of business financing. In the case of how you are charged its actually more simply than you think, the pricing of your transactions revolves around the total time it takes to collect your invoices, the actual size of your approved facility, and thirdly, an d in our opinion as important, who you choose as an invoice finance partner !



So what actually is the best pricing you can achieve in Canada from an ar finance strategy point of view? Well, let’s just say the spectrum is broad, with costs ranging from 5-6% per annum to 1-3% per month. Wow! Let's repeat that wow! That is clearly a huge range. So clients tend to ask where they fit into the pricing of their receivables factoring equation.



In Canada there are 2-3 tiers of firms which dominate invoice finance. They are a select group of U.S. and Canadian banks, some major independently owned Canadian and U.S. firms, and finally, hundreds of what ca be only termed as small ' mom and pop ' shops, providing facilities that might range in the 15-25k/month range .



Where does your firm fit. The truth around pricing is that once your firm has a volume of approx 250k per month you can start to achieve some significant invoice finance savings. Want to know another secret of the industry. It's simply that if lock into a facility for a year then you can actually achieve a price reduction, while open facilities tend to charge a bit more.



Our favorite and recommended type of facility is called C I D - It stands for confidential invoice discounting. What is it? It's simply a receivables factoring facility that allows you to bill and collect your own receivables. Your competitors might be using invoice finance but they are under the stringent control of their factor partner, who is intensely involved in the invoicing and notification to your customers of the financing you have arranged.



And, guess what, C I D financing, contrary to popular Rumour, is the same or less expensive that traditional U.S. and U.K. type factoring which have dominated the Canadian landscape for years,



AR Finance is at the end of the day a business financing facility that involves yourself and your partner firm. We recommend you deal with Canadian firms who understand the business landscape here and who ensure you have a facility that makes sense from a cost point of view. The right partner will also not ' nickel and dime ' you with respect to hidden fees, surcharges, etc. There isn’t a day when we don’t meet a client who ' thinks' he knows what they are paying for invoice financing, until, unfortunately, we expose the true pricing around his or her facility.



Want the real straight talk and goods on receivables factoring in Canada. Perhaps, just perhaps you might want to talk to an unbiased expert. Seek a trusted, credible and experienced Canadian business financing advisor, and get on the inside of the true benefits of receivables finance!

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Article Tags: ar finance, invoice finance, receivables factoring



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Re: Finance is the primary requirement of business - [quote="rauljoseph":36x8dadn]Finance is very important in a business. It is all about managing the business' money and other assets. Finance includes the study and analysis of processes, financial institutions, markets and instruments that are involved in the transfer of money or anything that has a monetary value among consumers, businesses and government.[/quote:36x8dadn] Good point. I'll just add that if I was going into business for myself and could only have one skill it would be Sales & Marketing. You need to be able to create customers first and foremost. Finance is more of a support function for entrepreneurs.
Finance is the primary requirement of business - Finance is very important in a business. It is all about managing the business' money and other assets. Finance includes the study and analysis of processes, financial institutions, markets and instruments that are involved in the transfer of money or anything that has a monetary value among consumers, businesses and government.
Which kind of industries are you interested in? - Ecological or E-business or Investment or Finance or Management or Non-Profit or Retailer or others.
Different Types of Funding - Finance for business can be obtained through a number of different sources. Let's review some of those channels to help you decide what's right for your business needs: Grants There are over 930 different EU and UK grants and loans available from over 100 issuing bodies. This is the cheapest form of finance and an important part of the funding package that companies and individuals need. We can help you find your way through this maze. Technology Micro Projects: 50% of eligible costs up to £20,000 Research project: For a technical and feasibility study of an innovative idea for new technology 60% of costs up to a grant of £75,000. Development project: For development up to pre production 35% of costs up to a grant of £200,000 Developing an innovative idea: valuable for small companies and individuals at the start of a technical project: 75% of costs of hiring a mentor and consultants. Export To start exporting or moving into new markets grants of 50% of costs up to £20,000 each. Training and Education Knowledge Transfer Partnerships, Achieving Best Practice in Your Business, Investors in People Modern Apprenticeships New Deal for various grants. Environment BOC Foundation for the Environment: 25% to 50% of Project cost, typically £20,000 to £100,000 Clean up Fund: Emission reducing equipment up to 75% of cost Community Chest Fund: Up to £25,000 for projects near active SITA sites High Impact Fund: £150,000+ for larger projects near SITA sites Assisted Areas Regional assistance grants of between 10 and 35% for capital expenditure in less favoured areas of the UK. Loans Loans are an excellent source of finance if you have suitable security to borrow against or a reliable earnings stream. This needs to be planned and presented well to obtain funds. Credit cards Provides up to 56 days free credit if you play the game! Overdraft Banks are surprisingly supportive when presented with a well thought through plan and competent management. Bank Loans Lenders tend to look for a good business plan and security. Typically the loan is approved by a centralised back office function rather than the person you meet. Terms and rates depend upon the risk. Repayments can be very flexible to meet your specific needs. Mortgages These can include flexible repayment terms to meet your business needs. This can even be incorporated into your overdraft finance so that you have one flexible account for both personal/ business mortgages and overdraft Small Firms Loan Guarantee Scheme Up to two years trading: Up to £100,000 Over two years trading: Up to £250,000 However these are difficult to obtain and are a loan of last resort. Export Guarantee Scheme This is government backed insurance against appropriate export documentation. Mezzanine This is a halfway house between loan and equity. It can be an innovative way of raising funds for the more established business. Mostly for expansion capital. Equity This is not as easy as the papers would have you know. Only 1% of business plans received by Venture Capital Funds are successful. However, a good business proposition consisting of a strong demand for the product or service, management track record and a sound financial plan will enhance the chance of success. Business Angels These are high net worth individuals who are successful businessmen looking for investment opportunities. They can provide both time expertise and money. Typical investment size is £25,000 to £250,000 but can go as high as £2m for the right opportunity. Exit within 3-5 years. Venture Capital These are investment funds seeking high rates of return. However typically investments are over a million pounds. Some funds are targeted at lower amounts depending upon the sector and region. These funds are looking for exponential capital growth over 3-5 years. Asset backed finance This can cover machinery, sales invoices even sales orders. It can be a very flexible source of finance to the growing business Leasing This will cover your capital expenditure and spread the cost over a three to five year period. It is particularly useful if you do not have taxable profits to maximise your capital allowances. Sale and leaseback of a property you own is another good source of funds. Factoring Factoring offers a sales ledger administration and debt collection service. Up to 95% of an approved sales invoice is paid within 48 hours, quicker if required. Credit protection is also available to protect against a bad debt. The Factor will own and place a first charge over the book debts and they might also take other charges, depending upon the strength of the financial information. Invoice discounting Invoice Discounting can be Confidential or Disclosed; it depends upon the strength of the financial information. The service is the same as Factoring, except that the sales ledger administration and the debt collection is the responsibility of the client and not the Factor. Pre payment of the approved sales invoice is still up to 95% and the factor will still have a first charge on the book debt and therefore own the debt. This service can also have credit protection cover. All sales invoices need to be for a business to business debt, and some proof of delivery is generally required. Trade Finance This is funding provided against stock purchases, signed contracts and orders whereby the funder will prepay a certain percentage of the value Pension fund It may be possible to use your pension funds for a loan back to the business What do u think about it?
Re: Finance is the primary requirement of business - Finance is important, but I feel there are so many other factors that are just as important if not more. You can have all the money in the world to run a business, but if you can't produce results your business is better off closing the doors.


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