Tweet

Receivable Factoring – The Two Things You Need to Know !

Guest post by: Stan Prokop

Article Overview: Information on how business owners and financial managers in Canada can focus on separating myths and fallacies about factoring and receivable financing . How To Pick the right Factoring and Receivable Financing partner

Receivable Factoring – The Two Things You Need to Know !

Canadian business owners and financial managers can make some big, painful, expensive and time consuming mistakes when they choose the wrong factoring facility. In a previous article we highlight three popular misconceptions about factoring - they were:

-Factoring is the pledging of receivables

- Factoring is expensive

- All receivable financing services and facilities are essentially the same

We provided information that clearly showed that there are a number of fallacies and myths about the factoring of receivables in Canada, and that the prudent business owner needs to investigate the true costs and 'how to' of factoring in Canada.

Let's now share two other major misconceptions around this method of business financing in Canada. They are as follows:

-Factoring is very intrusive to my customers and suppliers (NOT NECESSARILY!)

-All factoring companies are essentially the same (WRONG!)

Before we examine these two popular business misconceptions lets take a very brief step back and recap what receivable factoring is.

Canadian business, more than ever, needs cash flow and working capital to survive. Many traditional sources have either disappeared, dried up, so to speak, or simply are not available in the current business climate. Primarily we are of course referring to generous bank lines of credit for receivables and inventory. Business must go on, so how do business owners resolve these temporary cash crunches. One alternative is factoring. The other alternative is a term loan, which has fixed payments, and generally extends for a period of three to five years. So the business owner must decide whether to focus on short term working capital - i.e. a factoring solution, or permanent working capital via a term loan or more owner equity.

So now let's debunk out two myths surround factoring.

In a traditional what we will call the U.S. model of factoring we will agree that factoring, otherwise known as receivable discounting is in fact intrusive. The factor firm has the ability to in essence take control of your entire receivables function, including invoicing your customers with notification from themselves, dunning letters and calls for collection, and the insistence of payments being made directly to their firm. Is this intrusive - we certainly think so.

Is this the only alternative for Canadian business - absolutely not? Prudent business owners will seek the advice of an experienced, trusted, and credible advisor in business financing who will structure a facility that allows them to collect their own receivables. Under this scenario they will reap the benefits of factoring ( Immediate cash, increased working capital ) while at the same time preserving customer good will . So the bottom line is, yes, if you enter into the wrong type of facility, factoring will be deemed intrusive, but you have options and you should investigate those with professional assistance.

Now let's cover our final misconception - 'all factoring firms are the same'. The reality is that if you are not an expert in this unique form of business financing then you can probably be forgiven for having talked to a few firms and drawn the conclusion they have the same product and service offering.

The reality - Nothing could be further from the truth. Factor firms in Canada are sorted by geography, ownership (many are just branches of U.S. and U.K.operations) their own capital and borrowing structure, and, most importantly, how they do business on a day to day with you and your customers. When we talk to clients about factoring solutions we recommend they focus on firms that have a nominal holdback, competitive rates, and , most importantly, are comfortable in allowing you to do your own billing and collecting . Naturally at the same time you are in a position to reap the key benefits of receivable financing, which is cash flow and working capital leverage you did not have.

Talk to an expert, sort out the good from the not so good, and focus on a receivable financing facility that meets your cash flow and growth needs. That's solid business financing.

Related Articles
  Recourse and Non-Recourse Nurse Staffing Accounts Receivable Factoring: What’s the Difference?
  Factoring: an alternative way to finance your business
  Factoring and Receivable Financing in Canada
  Real World Advice on Cost of factoring of receivables in Toronto – Board the Receivable factoring Bus!
  What is Needed to Complete an Initial Nurse Staffing Account Receivable Factoring Transaction?
  The Only Disadvantage Of Factoring Receivables And Why Confidential Accounts Receivable Finance Works!
  What’s the cost of confidential invoice finance and how does receivable factoring work?
  Receivable Factoring – Three Things You Didn’t Know About Factoring Services
  Factoring – Financing Canadian Receivables
  Three Questions to Ask Before Choosing a Medical Coding Accounts Receivable Factoring Firm
  Factoring in Canada – Receivables Financing
  How To Get The Best Factoring Financing From Your Receivable Investment And How Factoring Firms Differ in Canada
  Working Capital Financing - 10 Reasons Not to Factor Receivables in Canada
  The Unknown Secret In Canadian Accounts Receivable Finance - C I D Business Factoring And Financing in Canada
  What is Accounts Receivable Factoring?
  Commercial Factoring And Receivable Financing Strategies in Canada
  Accounts Receivable Factoring: It’s More Than Just the Money
  What Does Accounts Receivable Financing Mean? How does it work in Canada?
  How Factoring and Accounts Receivable Funding Can Fix your Working Captital problems
  Factoring in Canada – Working Capital Now

Article Tags: business owners, receivable factoring, receivable financing



Related Forum Posts
In-depth understanding of Cash-flow - Accounts Payable and Receivable can get a lot of businesses in trouble. You really do need to be careful to ensure you don't come unstuck. Having a credit card or overdraft facility can help in these circumstances though.
Re: Seth Godin: Star Fish v Long Tail - Thanks for sharing, David. I always enjoy the interest it brings me when I read these types of things. Things that make you think to consider other possibilities, no matter how obvious they may seem. Cheers, Emma
Re: What is your biggest challenge? Today? - The Big challenge i face many days, is the challenge to stay on schedule. Things always pop up, like family plans and social gatherings. I always end up procrastinating. I've heard it's a very common situation, so does anyone have a resolution to that?
Franchisng - This is a ll excellent information. I guess I am in a limbo about this. I have a great business that has the potential to be an a amazing franchise. But I am bogged down with the day to day work that franchising seems overwhelming. I also don't know if I actually want to take the risk to expand. Do you tamper with a model that works well? Things to think about! Anyone been in this situation?
Re: Joint Ventures?? - I have done a lot of JV's in the past. Things like you join my program and I'll join yours, or your promote my product and I'll promote yours, and other things like that. I've also started sites with other people in a JV where they would have a job like building and maintaining the site and I would market or something like that.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Work Place Counselling

Word of Mouth Marketing Tips Fuel Success

Basic Operating Question (BOQ) for Empowerment

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.