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Factoring in Canada – Cash flow Financing Solutions

Guest post by: Stan Prokop

Article Overview: The article highlights the growing use of factoring in Canada as an alternative financing method for Canadian business owners and financial managers looking to maximize cash flow and working capital for growth, expansion, or restructuring .

Factoring in Canada – Cash flow Financing Solutions

Factoring in Canada continues to be more and more of a financing option for Canadian business owners and financial managers. Generally speaking factoring in Canada is a great synonym for alternative financing . When Canadian business is unable to raise traditional financing for working capital and cash flow solutions factoring becomes one of a number of viable alternatives .

Part of the appeal of a Canadian factoring solution is the ability of a firm to fairly quickly put this financing facility in place . In our experience the facility generally takes about two weeks to finalize, from start to finish. When we compare this against a firms time spent on negotiating traditional Canadian chartered bank financing we can easily see this as a key advantage.

Almost every industry in Canada has the potential for factoring invoices. The process is also referred to as invoice discounting. Companies that maximize the factoring process are generally those that are expanding and growing very quickly - this is probably the optimal use of factoring as an alternative financing vehicle , but in many cases Factoring in Canada is simply a survival or restructuring strategy of a temporary basis .

Most business owners and financial managers are keenly aware of both the cost of carrying their receivables, and at the same time the amount of management time that is spent on monitoring this asset, which quite often represents the largest or second largest ' current asset ' they have on their balance sheet . (Inventory is 2nd). So when you don't want to wait 30, 60, or in some cases 90 days for your receivables factoring is the quick and effective solution. It is somewhat more costly than traditional financing but savvy business owners can turn the perceived high costs of factoring around in a number of creative manners. This can be done in very basic ways such as increasing pricing by 1 or 2%, or utilizing part of the cash flow generated from factoring to take prompt payment discounts with suppliers, as well as negotiate better pricing on goods and services. Imagine a financing solution that gives you unlimited cash flow, and whose costs can be effectively managed by smart business decisions in your business and operational and purchasing model!

The process of factoring is really one of the key issues around why factoring was much slower to catch on in Canada, and business owners are highly recommended to research this type of financing with an experienced and credible partner. If properly structured your Canadian factoring solutions will not require additional collateral, and it should not be confused with term debt or additional borrowing, you are simply 'monetizing' immediately your largest liquid asset, those receivables!

So why is factoring become a cash flow solution of choice for Canadian business. If it's so great, why haven't you heard more about it? The truth is that factoring has been in place for hundreds, (some claim thousands!) of years. When I first heard of factoring is was always in conjunction with the textile or garment industry in Canada, much of that out of Montreal. Nowadays factoring in Canada is pervasive through every industry. We can very easily maintain that if your firm has good receivables and if your overall gross margins can handle factoring that you should be considering this financing as a potential alternative.

So what's the 'Canadian' spin on factoring? We know that in the U.S. there are probably over a thousand factor firms - these firms are looking for financing relationships with U.S. business. In Canada the market, as well as the players, is, as usual, smaller in size. We strongly believe that one of the reasons factoring in Canada did not catch on as quickly was simply that Canadian business owners did not like the concept that their receivable is managed via a notification process to their customer. So if your overall business philosophy does not foster the idea of a finance company notifying and collecting your receivable for you, you should strongly consider a non- notification financing factoring facility. This again is where you need the services of a trusted, credible, and experienced financing advisor to steer you through the Canadian factoring process .

In summary, Factoring in Canada is a newer form of financing - but has been in place in Europe and U.S. for hundreds of years . It has major cash flow benefits, is a great alternative financing strategy, and , if managed properly , is cost effective . Processes that Canadian owners may not necessarily like around the paperwork and customer intrusion can be managed and negotiated carefully with the assistance of an experienced business advisor in this area .

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Article Tags: cash flow financing Canadaalternative financing, Factoring in Canada, working capital



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