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Canadian Business Factoring And Accounts Receivable Discounting – You win !

Guest post by: Stan Prokop

Article Overview: Making Receivable Finance Work in Canada -Information on business factoring and accounts receivable discounting in Canada . How to control costs and maximize benefits with the right type of facility .

Canadian Business Factoring And Accounts Receivable Discounting – You win !

We had an argument last week... maybe it was more of an ' intense discussion ‘... with one of our associates. That doesn’t happen always... of course we're human, aren't we.

What was the argument about? Our friend maintained the cost and value of business factoring and accounts receivable discounting was not as great as we maintained it was.

We're strong supporters of A/R factoring, but always? No, only when it makes sense and you know what you are doing and how to extract the best value while at the same time minimizing the cost of Canada's newest for of alternative financing for small and medium sized businesses. And by the way, the big boys use it too, you just don’t know it.

When you consider this type of financing, your firm in effect becomes a cash flow machine, because as you generate sales you can immediately, and we're talking same day of course, turn those sales into cash.

But here's where the argument came in with our associate. Is it actually possible to control the costs of business factoring and accounts receivable discounting financing? We maintain it is, if you know what the key elements are of this type of Canadian business finance.

Let's break down the components of your total cost for this type of cash flow and working capital strategy. The three comments are the time it takes you to collect your receivables, the total amount that you finance on an ongoing basis, and finally the overall pricing and type of facility that you enter into. And boy do we meet clients that enter into the wrong type of facility.

So all of the above factors are critical to making A/R factoring work for your firm. Let's explore them a bit deeper. Collection turnover. It sounds mundane, doesn’t it? But wow is it important. You may never have walked into the head office of a large corporation, we have! Those types of firms have entire huge departments focused solely on collecting their receivables. Why, simply because cash flow is king and in a large amount of firms, probably yours also by the way, asset categories such as a/r and inventory are the largest investments you have in your company on an ongoing basis .

So focusing on your collections reduces the amount you have to borrow, and when you do borrow using business factoring and receivable discounting you are borrowing only what you need to. By the way, rates for this type of financing in Canada are between 1-3 % a month,

Larger facilities obtain better factoring prices - that type of statement is true in any type of business decision... ie if you buy more you get a better price. So in Canada if your facilities are over 250k on an ongoing basis your pricing often becomes a bit better.

Our argument with our associate got even hotter when they maintained that traditional factoring, often called ' full notification 'was the only way to go. Wow, don’t get us started, but we couldn’t disagree more. Our recommended type of receivable financing is called confidential invoice discounting. In that type of facility you bill and collect your own receivables, controlling the collection period, and thereby reducing your costs.

Well, as we said, we hate to argue, but we strongly feel we made our point with our associated. And what does business factoring mean to your firm then? Simply speaking... money today, instead of customer promises tomorrow. Its not additional debt and it works, if, and it’s a big if, you enter into the right type of facility.

Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you to get the facility you need at a cost that makes sense. Next steps then become sales growth and profits!

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Article Tags: business factoring and accounts receivable



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