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How The Cost of Factoring Finance Makes Sense In Accounts Receivable Financing

Guest post by: Stan Prokop

Article Overview: Information on the cost of factoring finance and why Canadian business owners and financial managers should consider adopting an accounts receivable financing facility with confidential invoice and receivable financing for cash flow and profit growth .

How The Cost of Factoring Finance Makes Sense In Accounts Receivable Financing

Is it possible to overcome the working capital and cash flow challenge you face with a confidential accounts receive financing and factoring facility? And another thing what is the true cost of factoring finance.

Let's weigh in on those two issues and try and help you solve your Canadian business financing needs - our comments are mainly addressed to small and medium sized companies in Canada, but we can assure you the big boys come to talk to us about these problems also.

Problems we said... so what is that problem really. It’s simply that the ability to maintain ongoing liquidity continues to be the largest challenge in business today - simply put, the recession is over _ (the government sent us an email confirming that!) and your business is on track to grow again.

The ability to get proper business financing credit and the perceived cost of factoring finance is always a discussion point we have with clients. Working capital and cash flow are needed to keep up to your day to day operations, let alone grow your business in the manner that you want to.

We don’t want to be perceived as naysayer, so lets address our real subject here, which is accounts receivable financing, the cost of factoring financing ( that’s what it is commonly known as ) as well as the benefits of what we feel is the greatest secret in Canadian business today, a confidential invoice and receivable financing facility.

First of all, what is the facility, and is it somewhat non traditional or alternative in nature? A true accounts receivable financing strategy is actually quite simply - you enter into an arrangement to sell your sales as you generate them - receiving cash, the same day! That of course is better than waiting 1, 2, and yes dare we say 3 months to collect your A/R. That brings us nicely into the area of the cost of factoring finance - which in Canada ranges typically to 1.5-2% per month.

Isn’t that expensive, asks clients. We don’t think so, but you decide based on these facts. This charge, which is known in the industry as a discount fee, not an interest rate per se, can be significantly offset by your new ability to take supplier discounts in the same amount, as well as purchase more effectively. The positive intangible around this is that you will build better supplier relationships than your competitors probably have, simply because suppliers love being paid.

And don’t forget what we said early, which is that you , instead of waiting 60-90 days to get paid have cash flow to sell more and creates profits to offset this financing cost . So in summary the combo of increased cash flow to reduce payables, as well as your ability to in an unlimited based generate immediate cash flow for profits very clearly offset any perceived ' high financing costs '. (We have met customers who have negotiated 5% better pricing with their suppliers based on their new found ability to pay cash.

The best type of accounts receivable financing facility in Canada is what we call a confidential invoice discounting facility. You bill and collect your own invoices, unlike your competitors who use traditional factor financing. And factoring finance cost is the same!

Intrigued? Interested? Hopefully not confused! Investigate the benefits of accounts receivable factoring finance with the use of a trusted, credible and experienced Canadian business financing advisor. It’s a cash flow 101 great strategy.

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Article Tags: accounts receivable financing, cost of factoring



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