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Is there an Alternative Solution to Factoring for Canadian firms with working capital Challenges ?

Guest post by: Stan Prokop

Article Overview: The article provides an overview of an alternative solution to Factoring as a working capital solution .

Is there an Alternative Solution to Factoring for Canadian firms with working capital Challenges ?

Canadian firms who sell on credit terms to their customers (that's almost everyone!) require an appropriate amount of financing vis a vis the investment they carry in accounts receivable and inventory .Although the Canadian business owner and financial manager likes to think their firm sells on thirty day terms they of course have the hard reality of continually trying to sell receivables that are 60 and 90 days old.

The classic 'working capital 'gap is a huge challenge for most small and medium sized firms in Canada.

Enter factoring or receivable financing, a k a receivable discounting. This type of financing often becomes the alternative to the Canadian firm that is unable to generate the full amount of bank financing they require for operating lines of credit.

Factoring is of course the alternative to that 'operating line of credit. That type of facility allows you to pay suppliers, employees, etc while you wait for your receivables to be collected. Your receivables are in essence pledged as the collateral for the operating line of credit, or, in our case the factoring facility.

We need to also understand of course that the reason the firm cannot generate a bank facility is the requirements of the bank necessitate strong balance sheets, solid operating efficiencies, and profits and cash flows. Many businesses have challenges in some of those key areas that the bank focuses on.

So, is there a better solution to factoring as we have posed in our article title? The best solution is a true working capital facility of based lending']);"> asset based lending facility. This is a non bank facility but operates in much the same manner as the margined bank facility. The facility allows your firm to meet payroll and supplier commitments and is significantly easier to arrange.

One of the main disadvantages of factoring, as perceived by Canadian business owners, is the intrusion that factoring can make into your customer based. Pure factoring along the lines of what is practiced in the United States involves notification to your customers, collection calls by a third party to your customer, etc.

A true asset based line of credit, which we call a 'non - notification' facility, has no level of customer intrusion. Yes this type of facility, similar to factoring, is more expensive than bank financing, but it removes much of the stigma that Canadian business owners associate when they hear the word factoring.

The Canadian market place if very segmented in factoring, receivable financing, and true based lines of credit']);"> asset based lines of credit lending. Companies are best served to align themselves with a true business financing and working capital expert who can ensure the optimal facility is originated for your company on your behalf .Working with a trusted financing will ensure you have the optimal rates, structure, and day to day working capital facility that meet your cash flow financing needs.

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Article Tags: alternative solution, asset based lines of credit, challenges, factoring, receivable based financing, working capital



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