Tweet

What To Consider When Funding Your Company Via Accounts Receivable Financing As An Alternative

Guest post by: Stan Prokop

Article Overview: Information on accounts receivable financing in Canada . When funding your company with business capital via a/r finance consider these key issues .

What To Consider When Funding Your Company Via Accounts Receivable Financing As An Alternative

So, you're almost there. After evaluating a number of both traditional and alternative business financing and capital cash flow alternatives you've chosen a non bank accounts receivable financing strategy as your new form of company funding.



So far so good. Right? But let's get you some expert help, guidance and tips around selecting the right strategy for your new financing. We'll focus on some key issues that traditionally in our experience have made it hard for client to both understand and be successful with this form of working capital financing.



First things first, so lets cover off a very basic question - which is simply ' how does the facility work on a daily basis?' You need to understand that the amount you can borrow in A/R financing revolves solely around your ' eligible 'receivables. So what do we mean by eligible? Depending on who you are dealing with ( we prefer you deal with the good firms, not the less than good ones !) eligibility traditionally revolves around your Canadian and U.S. invoices under 90 days from an a/r aging point of view . Also, if you find you are unable to finance clients who are U.S. based you are absolutely working with the wrong party.



Drawing on a day to day basis on this facility are based on your a/r aging report .Company funding of your receivables revolves around your ability to produce an a/r aging that balances of course, and reflects invoices that are due and owing by your clients .



Many of our clients don't understand a key process around which your day to day operation works. It's called a 'blocked account ' process. Sounds complicated, but really isn't. Here's how it works. Receivables that you submit are financed on a daily basis, with those funds being deposited directly into your regular commercial bank account. An accounts receivable financing company is generally, almost always, NOT a bank, but you still use your general bank account for all financing under this facility. Funds are usually deposited daily, as you need them.



But, when you clients pays, the process changes. You deposit those funds into a blocked account which is in the name of your financing partner. That makes sense, since you have already received the benefit of those funds. At this time any holdbacks that are in place with your facility ( generally no more than 10% are paid back to your firm, less of course , and here it comes .. the financing charge!



And now to that almighty question that we get, pretty well every day these days. What is the financing charge from a funding company for accounts receivable financing? This form of financing in Canada should typically not exceed between 1.5-2% per month. What clients need to bore down and understand is some technical terminology around what the actual charged ' discount ' (aka interest financing charge) rate is, what funds are held back in reserve on each invoice, and any small nominal charges re wire transfers, processing, etc.



Want to understand A/R finance a lot better? It's easy to get bogged down in the technical terms, and some of the players out there do a great job of confusing this valuable type of financing. Focus on how it works, what it costs, and more importantly who you're dealing with. Consider seeking and speaking to a trusted Canadian business financing advisor who can assist you in ensuring this for of business capital works... for your company!

Related Articles
  How Will My Customers View Temporary Nurse Staffing Account Receivable Financing?
  What Does Accounts Receivable Financing Mean? How does it work in Canada?
  We’re Sharing the biggest Secret in business funding today and why factoring of accounts receivables isn’t what you thought!
  Why Canadian Business Is Turning To Accounts Receivable Financing Via A Factoring Company For Survival And Growth
  Should Your Medical Equipment Company Factor Its Invoices?
  What is Accounts Receivable Factoring?
  Canada’s Newest Biz Financing – Receivable Financing Companies and Providers Of A/R Loan Plans
  The Unknown Secret In Canadian Accounts Receivable Finance - C I D Business Factoring And Financing in Canada
  The Only Disadvantage Of Factoring Receivables And Why Confidential Accounts Receivable Finance Works!
  What is the Factor Cost Of Factoring Accounts Receivable?
  Excuse Us For Pumping Types Of Accounts Receivable Funding In Canada ! Intrigued By Factoring Finance In Canada?
  What’s the cost of confidential invoice finance and how does receivable factoring work?
  Factoring and Accounts Receivable Financing – A Real Working Capital solution for Cash Flow challenges
  Factoring and Accounts Receivable Financing Expert Tips
  Canada’s Ultimate Working Capital Combination Alternative Financing Solution -
  Home Care Factoring – An Alternative Funding Option for Agencies
  Factoring and Receivable Financing in Canada
  Home Healthcare Factoring: The Right Funding Solution for Your Home Healthcare Agency
  Accounts Receivable Financing and Factoring Facilities Help Canadian Businesses Grow!
  Why Your Financial Statements Are Important

Article Tags: accounts receivable financing, company funding



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.
How to valuate a business - Hi Garth - here is how we did it at Northern Crown Capital when I was helping them raise venture capital for Toronto-based entrepreneurs. Assume the start date is 2003 so 2008 projections are 5 years out: How Northern Crown Capital Valuates a Business 2008 Financial Projections Earnings Before Tax $5,865,000 Tax Rate 42% Taxes $2,463,300 Net Earnings $3,401,700 Amount Seeking to Raise Today $3,500,000 Discounted Value of Future Opportunity, 5 Years Out 2008 P/E Ratio 15 Value of Company in 2008 $51,025,500 Discount Rate Applied 30% Year 2008 $51,025,500 Year 2007 $35,717,850 Year 2006 $25,002,495 Year 2005 $17,501,747 Year 2004 $12,251,223 Value of Company at Investment in 2003 $12,251,223 Less: Investment Amount $3,500,000 Present Value $8,751,223 Discount for Risk & Private Company 40% Less: Discount for Risk & Private Company $3,500,489 Private Company Value $5,250,734 Present Value (What the Owner Keeps) $5,250,734 60.00% Financing (What the Investor Gets) $3,500,000 40.00% Total $8,750,734 100.00% I hope this helps!
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.
seeking investors for global finance opportunity - Phoenix Global Funding, Inc. is a Global Commercial Loan Brokerage, Merchant Bank, and a Business Consulting Firm that can work on commercial deals of all sizes. Our greatest strengths are revealed through our superior internet interface and our extensive private network of lenders and equity partners with which we can service any company on the planet by having the ability to broker and coordinate mergers, acquisitions, and funding of all kinds. As a full service commercial financial conduit we also provide valuation, business management, and profitability consulting. I am offering common stock ownership in Phoenix Global Funding, Inc. It is exciting to be in a position to be able to share not only ownership but profit in this latest project. Our business plan was developed from the oldest, most reliable and the most profitable business model ever created, LENDING. This is all about what the big boys do on Wall Street everyday. We are raising US$1,000,000.00 with share prices starting at $1.00. The exit strategy is in 3 years with a minimum 3 to 1 return on capital, plus a 20% profit share annually.
grants for restaurants - Well friend I don’t have any idea about government grants for restaurants, but I will recommend that you may try on some banks who offer loans for small business where the government will have some guarantee. Beside that Restaurants business is very risky so some of banks who gave some Financing Loans they will look at on it if there is enough solid business plans.


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

12 Principles to Spark Innovation

Pay Per Click Advertising

Maximum Impact Restaurant Greening

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.