Tweet

Working Capital Financing - 10 Reasons Not to Factor Receivables in Canada

Guest post by: Stan Prokop

Article Overview: The article highlights working capital issues in the current Canadian business environment and offers some alternate soltutions for factoring including debunking factoring myths.

Working Capital Financing - 10 Reasons Not to Factor Receivables in Canada

Working Capital Financing - Canada continues to be challenged by liquidity and financing for business. For Canadian business owners to be successful they need to have new financing alternatives today. I recently spoke to a business owner who was quite clear on his thoughts on the new financing alternative for business - factoring, also known as receivable discounting. Let's examine his problems with this unique financing alternative and see how valid his points might be.

According to my customer - 'Ten Reasons Not to Factor:'

and our answers to those issues! -->

COST - Many business owners perceive factoring to be very expensive - yes it is more expensive than traditional financing , but it provides you with all the liquidity you need when you cant get receivables financed or margined by a Canadian chartered bank - a proper effective analysis by an experienced business advisor can show you that you can recoup almost all of the costs of factoring in a number of ways - also, many business owners and financial managers don't understand the true cost of carrying their receivables for 60-90 days and what the financial benefits are of turning receivables over quickly

DON'T UNDERSTAND THE MARKETPLACE-

There are many types of factoring - notification, non notification, recourse, non recourse, spot, etc - Yes , if you don't understand the marketplace talk to a financing expert - he or she can explain what factoring solution works for your firm

TIME TO APPROVE THE FACILITY - In reality factoring and receivable facilities can be set up in days, not the weeks and months it might take to negotiate a significant bank line

HAVE FIANCNING NOW - Factoring can be complimentary to your existing financing when all parties work together, which creates a win win environment

WEAK BALANCE SHEET- If you have a weak balance sheet that does absolutely not preclude you from a factoring or invoice discounting facility

LOSING MONEY - Factoring and receivable financing focuses on assets, not financial losses - Hopefully the financing facility will in fact put your firm back on the road to profits and working capital

I HATE NOTIFICATION - Our firm specializes in a unique form of non notification factoring financing - you bill and collect your own receivables

I AM WORRIED ABOUT BAD DEBT - Depending on the factoring expert you are working with facilities can be structured to insure your receivables

OTHER FIRMS THINK I AM IN TROUBLE IF I FACTOR - that is an old way of thinking when factoring originated in Canada - the reality is that some of the largest and most successful corporations in Canada factor tens of millions of dollars of receivables

DONT KNOW WHO TO TALK TO - Factoring is a newer form of alternative financing, talk to people you trust or engage the services of an experience factoring advisor who will take the time to explain your options and set up the facility

Hopefully my customer now understands that factoring as a working capital option is something that every business should consider as a financing alternative .

Related Articles
  How The Right Factoring Firms in Canada Can Provide Financing Factor Facilities Confidentially
  Factoring and Receivable Financing in Canada
  Factoring in Canada – Working Capital Now
  Receivable Factoring – Three Things You Didn’t Know About Factoring Services
  Factoring and Accounts Receivable Financing In Canada
  Want Some Business Financing Privacy ? Canadian Confidential Receivables Financing Is An Alternative To Commercial Finance Factoring Funding
  Working Capital Factoring – Invoice Factoring Canada
  What’s the cost of confidential invoice finance and how does receivable factoring work?
  Receivables Funding In Canada . The Good , The Bad And The Ugly ! Sales Of Receivables Factoring Works If …..
  Benefits Of Invoice Factoring And Factors That Affect The Cost Of Factoring Receivables
  Why an Asset Based Lender Is Your Working Capital Solution
  Factoring In Canada – The Most Important Thing You Need to Know
  Accounts Receivable Factoring in Canada
  Working Capital Financing – Commercial Financing Solutions
  Imagine! Canadian Accounts Receivable Loans That Work – Financing Receivables The Right Way
  Receivables Purchase Finance In Canada . Don’t Get Caught Misunderstanding AR Financing strategies And Costs
  Working Capital Factoring – A business ‘ Dear John’ letter to my customer!
  What is the Best type of Factoring and Receivable Financing Facility for Canadian Firms?
  AR ( A/R ) Financing Is Your Logical Plan B – How Factor Finance Becomes Your Solid Canadian Non- Bank Funding Source
  Sources of Financing for Working Capital Cash flow in Canada

Article Tags: alternative financing, canadian business, factor receivables, working capital



Related Forum Posts
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!
Re: What is Your Favorite Thing About Owning A Business? - [quote="freddyb45":1t3lpfi8]For me it's the fact that all the time and effort you put in is worth a lot more, due to it making you "business" more profitable. Working for yourself is also a positive, although employing people you can trust is quite different.[/quote:1t3lpfi8] I like this idea. Working for yourself means you are investing in your own future, not someone else's, although there is value in working for someone else first to gain experience and confidence. Working for yourself does not automatically mean success, fame and fortune. For most entrepreneurs, it takes much work and dedication to get to the point of financial success and comfort - sometimes years. But the benefit is, again, you know you are investing in yourself and building equity for your own future. GT :-]
Accessing the Canadian Market - Leo, an idea that came to mind is try to align yourself with Hispanic Organizations in Canada. This will build your credibility within communities and get more referrals. Not sure if you plan on being based in Canada or operate your business from Columbia but either way being in the web development arena allows you to work from anywhere. You can also search for opportunities originating from Canada thru elance.com, getafreelancer.com, freelance.com or rentacoder.com
Re: 10 Reasons Who Startups Fail & Book Recommendations - Great post,but please edit the headline. I presume it is "10 Reasons Why Startups Fail & Book Recommendation
Re: Introducing a US franshise to a Canadian market - [quote="BuzzAroundBooks":1l00q6iy]Hi Everyone, If there was a franchise you liked and located exclusively in the U.S., how likely would you be able to introduce the first one in a new market like Canada? How open are franchisors to this sort of idea? Has anyone heard how this was done in the past?[/quote:1l00q6iy] US franchisors are really open to "export" their concept to Canada for 2 main reasons: the proximity and the culture: Canada is just a few hours away from any US city and both cultures are very similar. I am actually reading stats on this subject as I write and about 80% of american franchises tat go international go to Canada first.


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

E Mail Marketing Campaigns

How To Calculate A Minimum Fee For Your Services

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.