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Factoring In Canada

Guest post by: Stan Prokop

Article Overview: An overview of factoring in Canada - Why more and more Canadian business oweners realize the financing power of invoice discounting and great alternative cash flow strategies.

Factoring In Canada

Factoring in Canada - its growing, it's popular, it's misunderstood! Let's clarify some facts and discredit some misconceptions around the financing of one of your Canadian firm's largest and most liquid asset - accounts receivable.

Factoring in Canada is how many firms are able to in effect leverage their accounts receivable without adding additional debt to the firm. Many customers actually utilize portions of their factoring and working capital facilities to address other issues in their balance sheet such as accounts payable or government super priority payments.

Is factoring in Canada the only way to generate working capital. Most certainly not. Your business has the added options of borrowing under a loan, or term loan scenario. A working capital cash flow loan injects a permanent working capital into your business with fixed payments over time - usually 3-5 years. That of course also adds debt to your balance sheet, and most owners we speak to are looking for cash and working capital solutions, not debt on their balance sheet.

Your firm's receivables (and inventory of course) generate sales revenue and profits for your firm. So clearly you want to ensure you are maximizing those assets while at the same time keeping your balance sheet stable. Balance sheets become unstable when there is too much debt.

You can of course choose to limit your growth prospects and remain self financing, or to negotiate an amount of credit with your bank that leaves the bank comfortable but not necessarily you as a business owner. You can also ignore address those growth aspects as we have said by borrowing to service that growth.

There is a third choice, which is financing your accounts receivable as you generate them - that strategy seems much better to many business owners - you're growing, meeting your business goals, increases profits, and the over all worth or value of your business .

If you sit down and carefully address the issue of what factoring or invoice discounting costs you will find that if you lay out three scenarios one might be much more appealing than the other - lets recap those scenarios :

-Continue to self finance and limit your growth and competitiveness - including the obvious working capital and daily cash flow challenges

-Borrow on a term debt or subordinated debt basis

-Sell your receivables as you generate them - increase sales and profits and capture all the opportunity costs of additional working capital

Somehow our third option remains more appealing!

So why are we not hearing more about Canadian business owners who have discovered a holy grail of financing? When we talk to customers we know the answer - they have entered into the wrong type of factor facilities. The fragmented and U.S. influence on factoring in Canada has many firms entering into the wrong type of facilities. We advocate non notification factoring, no locked in contracts, and fair competitive pricing.

Check out the benefit of factoring in Canada, and speak to an experienced advisor in the area - you just might be one of the few who have found the holy grail of the best financing solution for your firm at this time

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Article Tags: cash flow, factoring in Canada, working capital solutions



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