Tweet

Receivables Funding In Canada . The Good , The Bad And The Ugly ! Sales Of Receivables Factoring Works If …..

Guest post by: Stan Prokop

Article Overview: Information on sales of receivables funding for Canadian business owners . Factoring works best under these conditions .

Receivables Funding In Canada . The Good , The Bad And The Ugly ! Sales Of Receivables Factoring Works If …..

It's probably just us, but when it comes to business financing in Canada no other method of financing your business is as controversial or misunderstood as sales of receivables financing, aka factoring funding.



Let's examine some key points that will clarify the ' Good, Bad and Ugly ' of receivable financing in Canada.



Let's start off with the ' good ' as we think you will soon might find that the ' bad' and the ' ugly ' are simply misunderstandings , but we'll let you decide.



So whey do Canadian business owners and financial managers embrace this newer form of financing in Canada. Simply because it supercharges your cash flow - by selling your A/R you in effect maintain cash flow for operations, and eliminate the need for additional debt or taking on or putting in new equity. We constantly remind clients that the dilution of your equity is in fact the costliest method of financing, everyone pretty well agrees on that.



Another point in our ' Good ' column is that if structured properly your sale of receivables financing sets you up for unlimited capital and cash flow - simply speaking your working capital grows lock step with your sales. Not too many other methods of business financing can make that statement.



The Ugly. The following point is simply the most recognized complaint when we talk to clients. It involves the mechanisms under which A/R financing works. 99% of the structures used by factor companies involve the factor firm validating the credit worthiness of your clients, and getting involved in the billing and collecting of your receivables. Why. Their answer would be that you have sold them the receivable and it’s theirs to collect.



So that’s bad, right? Most Canadian business owners and financial managers that we speak to would say they would prefer to bill and collect their own receivables, and maintain those client relationships that are so important. Enter ' the good '! Here's the good news, most Canadian businesses contemplating sale of receivables funding / factoring are eligible for what we term ' Confidential receivables financing ‘. Utilizing that mechanism your firm bills and collects its own receivables, maintaining total control on the billing and collection function. You in term remit those funds to your finance firm, simply because you have been advanced those funds already.



The Bad. Here is where misunderstanding reigns supreme in A/R financing. It's the ' price ' or ' cost ' of this method of business financing. When you finance a receivables portfolio a factor firm buys your A/R at an ongoing discounted price. That price, on balance, in Canada is 2-3%. Business owners in Canada confuse that purchase discount fee as an interest rate, and that’s a large part of the problem. In reality its how you manage that 2-3% that ultimately reflects your total cost of financing. You can manage that cost by adjusting part of the cost into your cost of sales - we remind you that you’re already absorbing a large cost by carrying receivables and inventory already.



And by the way, with that new found sale of receivables funding cash flow you can now take supplier discounts if they are offered, which by the way, are generally in the 2% range. Want more good, rather than bad or ugly?! You can now enhance your purchasing power with suppliers, and if you choose (not always recommended by us) you can offer extended terms to your clients that your competitors might not be able to.





The bottom line today. Thousands of Canadian businesses embrace sale of receivables funding / factoring everyday. Consider speaking to a trusted credible and experienced Canadian business financing advisor to wade through the good of this method of business finance, and you might just find that bad and ugly are either misunderstood or don't exist . That’s a working capital solution!

Related Articles
  Real World Advice on Cost of factoring of receivables in Toronto – Board the Receivable factoring Bus!
  How The Right Factoring Firms in Canada Can Provide Financing Factor Facilities Confidentially
  Working Capital Factoring – Invoice Factoring Canada
  Factoring and Accounts Receivable Financing In Canada
  Heavyweight Canadian Invoice Finance Funding '" C I D Credit Financing & Factoring for Your Firm
  Factoring Finance – Don’t Make This Mistake when Considering a Factoring Program in Canada
  Factoring In Canada – The Most Important Thing You Need to Know
  Working Capital Financing - 10 Reasons Not to Factor Receivables in Canada
  Study : Can Financing Receivables Via A Confidential Receivable Factoring & Funding Solution Save Your Company?
  We’re Sharing the biggest Secret in business funding today and why factoring of accounts receivables isn’t what you thought!
  Medical Staffing Invoice Funding: Tips for Managing Customer Fears
  Receivable Factoring – Three Things You Didn’t Know About Factoring Services
  Factoring and Receivable Financing in Canada
  The Benefit of Consumer Receivable Financing
  What’s the cost of confidential invoice finance and how does receivable factoring work?
  Factoring in Canada – Working Capital Now
  Factoring Financing – Best Accounts Receivable Financing Solutions for Canadian Firms
  How Will My Customers View Temporary Nurse Staffing Account Receivable Financing?
  Accounts Receivable Factoring in Canada
  Factoring Receivables ? It’s Up To You - Pick The Right Business Finance Company As Your AR Factor Partner

Article Tags: factoring, sales of receivables funding



Related Forum Posts
Evaluating a franchise: questions to ask yourself - Here are a few questions you may want to ask yourself before buying a franchise: - How much capital do I have to invest? - What is the value of my liquid assets? - Do I require a specific level of annual income? - Am I interested in pursuing a particular field? - Am I interested in retail sales or performing a service? - Do I want a part-time or fulltime opportunity? - How many hours am I willing to work? - Do I want to operate the business yourself or hire a manager? - Do I want to have employees? - Do I want to have inventories? - Do I want to have Accounts Receivables? - Will franchise ownership be my primary source of income or will it supplement my current income? - Would I be happy operating the business for the next 10 years? - Would I like to own several outlets or only one?
taxes in canada - Well in Canada we only have a few provinces and the Sales tax is slightly different. Here in Ontario the Goods & Services tax has reduced to 5% from 7% in the last year due to the promises made by the government in place.
Online Sales and Marketing vs Traditional - Hi Evan, I am noticing that many of the posts in the Sales/Marketing section deal with online marketing, SEM and and SEO and Affiliates. I was wondering if it might be a good idea to separate that section into two; 1) Online Sales and Marketing; 2) Traditional Sales and Marketing
Why pay a Consultant? - Consultants can bring you into contact with a Funding Source but how do you tell whether a consultant will be successful beforehand? Professional Consultants ALWAYS ask for some kind of retainer so that they can feel they're not being used by a 'chancer'. However, when raising funding, a real consultant will offer to REFUND THAT RETAINER out of the % BROKERAGE he charges, payable once he finds your Funding Source, and payable from initial disbursements. Retainers only cover part of the costs that a consultant has to pay while working on behalf of the Client. Their real wages come from the agreed upon Brokerage, received when they are successful on the Client's behalf.
Re: Online Sales and Marketing vs Traditional - [quote="ltrahan":31w9r2iz]Hi Evan, I am noticing that many of the posts in the Sales/Marketing section deal with online marketing, SEM and and SEO and Affiliates. I was wondering if it might be a good idea to separate that section into two; 1) Online Sales and Marketing; 2) Traditional Sales and Marketing[/quote:31w9r2iz] I second the request...


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

Ten Ways to Make Blogging Work for Your Business

Listen to Your Inner Melody

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.