Working Capital Factoring - Working Capital Factoring – A Dear John Letter in Canada

Dear John - Working Capital Factoring in Canada continues to be a disappointment for you and I sympathize with what you are experiencing. I think we have some solutions and observations for your firm that will help you change your attitude towards working capital factoring.

John - I know as a Canadian business owner you are looking for financing that will be a major tool in assisting you to grow your business and allow you to reach your sales and profit goals. When we talked you told us that you perhaps had jumped too quickly into a working capital factoring facility that was not up to your expectations.

So lets backtrack a bit John, lets understand what working capital factoring is about, why it doesn't work well for many firms in Canada, and how we can make it work almost perfectly for you .

Factoring in Canada came from U.S. and European models that have been in place for hundreds of years. When we line up ten methods of business financing in Canada Factoring might well be number ten, and also enjoy the privilege of being the most misunderstood. That seems to be your experience also John!

However, every years hundreds of millions of dollars are injected into the Canadian economy based on factoring facilities. Many firms who have financial challenges, are struggling with grow, etc are finding that factoring sometimes is not a solution, it is the ONLY solution!

John - when we talked a year or so ago based on your investigation into factoring we recapped the basic - it's simply the selling or assigning in some cases of your accounts receivable, at a discount. I know the discount has been a challenge for you, and we'll address that shortly. The essence of factoring is you selling and delivering your products and services and not having to wait 30 -90 days sometimes for your payments from your customers. As you have stated, if you had the cash immediately, you would re invest that cash into more inventory, sell more, and once again, collect immediately.

So John, what went wrong, and why have you contacted us for assistance? Here is what we think. While you recognized factoring as almost a perfect option for your challenges, you entered into the wrong type of factoring facility with the wrong firm. Everyone had good intentions, but it just didn't work. You wanted a working capital factoring arrangement because you had a line of credit with your Canadian chartered bank, but it was far from what you needed based on new orders and contracts. You were ok with factoring discount rates, which in Canada can be from .75% - 3% per month.

The reality is John, as we stated, that you 'signed up 'with a factoring firm that did not meet your needs or understand your business model. We recommend what is known as a non- notification working capital factoring facility. It will remove 80% of the problem you have with factoring, which is that you did not understand that the factor company would be billing and contacting and collecting from your customers. That is intrusive you found, we agree!! So let's focus on getting you the non notification facility so you can bill and collect your own receivables and maintain those customer relationships.

John - because you didn't read the fine print of your working capital factoring arrangement we now find you are locked into an agreement for several more months. We will put you in a facility that will not lock you in; you can move on or amend that facility at any time. That takes away another 10% of your problem with working capital factoring.

Now let's talk price and discount - We will arrange that you get same day funds for 90% of your invoice amount, and you will receive the balance quickly, less the discount fee, when your customer pays. I think we have just taken care of 100% of your problems with working capital factoring.

John - in our next meeting we will address more advantages about working with a firm who is trusted, credible, experienced and capable of providing you with the best working capital factor facility for your needs. Thanks for calling and telling us what happened!


Stan Prokop is the founder of 7 Park Avenue Financial . The firm specializes in business financing for Canadian companies     in the areas of working capital , asset based lending, SR & ED tax credit financing, equipment financing,  franchise financing and banking .


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