How To Manage Costs Of Sales Of Receivables Via Factoring – Business Cash Flow Financing Explained!

A Better Alternative – Understanding A/R Financing Costs


Information on how to understand and manage the costs of sales of receivables when utilizing the business cash flow strategy known by most business owners as factoring or invoice financing



When Canadian business owners and financial managers contemplate sales of receivables as a business cash flow strategy often the cost, and understanding the dynamics of that cost is top of mind. In general A/R financing, aka ' factoring' is somewhat understood in the Canadian business financing marketplace. And if it isn’t understood, it certainly is not as well known as to its mechanics, benefits, and how to do it the proper way.


We have often thought that it's simply that when firms are usually entertaining a new cash flow or working capital strategy it's because ' dire straits' have set in, and the company finds itself short of cash or generally unable to meet obligations on both operating expenses and other debt such as equipment leases, etc.

We have often preached that some of those basic problems can be fixed without external financing, i.e. a stricter credit granting policy, better matching payables outflows to A/R inflows.

However, when it’s absolutely certain that a new business financing strategy is required A/R financing is certainly one that thousands of firms are considering everyday. Why? Simply because it brings fast efficient cash flow to your firm through the sales of receivables. The way that A/R finance works couldn’t be more simple- that why we're often dismayed when we learn clients have been misinformed or led astray on pricing and factoring mechanics on day to day operations... simply speaking... how it works!!

If we had to simply one key benefit of factoring pricing it’s simply that you are only paying for the financing you are using. Using a simple (that’s our style by the way!) example of a 100.00 invoice it works as follows. As soon as you generate the invoice and can validate internally that you have shipped or earned the revenue for your product or service you receive a large amount, typically 90%, as an immediate payment for the sale of that invoice.

We can hear you already. ‘What about that other 10%"? The industry terms that the holdback and you get that back, less the financing cost, as soon as your customer pays. And by the way, if you have a number of accounts, and are utilizing an a/r finance strategy doesnt it make common sense to sell, or ' factor' your better paying customers. That’s because, as we have said, you only pay for what you use and your financing costs are decreased with those better paying customers.

Many of the benefits of factoring are overlooked because of the cost factor. We won’t even mention that your company now has the ability to simply survive sometimes, but more importantly, think Sales! Revenue! It's these lost opportunities that no longer are ' lost' since you are now immediately cash flow positive - what an exhilarating feeling that must be. Instead of uncollected A/R the left hand side of your balance sheet now shows ' Cash on hand’!

In Canada the ' fee' to sell a receivable is in the 2-3% range on a monthly basis. The danger is when clients compare this directly to commercial bank interest, which in many ways is the wrong analogy. And remember, there is not debt here, you're monetizing or cash flowing assets on your balance sheet. In many cases we see you now have the ability to double your revenue without taking on additional debt, if in fact that debt was available to you.

Looking for the inside scoop? Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in ensuring that sales of receivables as a business cash flow strategy , if done properly, with the right partner, is a solid path to growth and success.



ABOUT THE AUTHOR - STAN PROKOP

7 PARK AVENUE FINANCIAL

CANADIAN BUSINESS FINANCING


http://www.7parkavenuefinancial.com/sales_of_receivables_business_cash_flow_factoring.html

Is Your Company In A Constant Whirligig On Business Cash Flow & Working Capital Funding Challenges ?

Canadian Cash Flow and Working Capital Solutions


Information on business cash flow and funding working capital in Canada. Measuring the problem and address it via real world solutions .



Boy do we love a good term when we see one. Whirligig. It’s the definition for a ‘ whirling or circling course of events ‘. Don’t business owners often feel they are in a constant whirligig of business cash flow challenges – always looking for funding for working capital as their business grows? They certainly are always telling us that.

Let’s examine some ways to both measure and address working capital and cash flow shortages. Our primary focus is on the SME (small to medium enterprise) sector of business in Canada. We should note that larger corporations have access to more sophisticated working capital solutions that include unsecured cash flow loans and mezzanine debt provide by Chartered banks, private equity firms, and specialized commercial financing companies in Canada .There are even some hedge funds in Canada offering this type of working capital solution.

The cash flow lending offered by these firms to larger companies is based on multiples of cash flow and profits, not utilizing the actual assets of the firm as first position secured collateral. Suffice to say that interest rates on these types of loans are very attractive but at the same time come with rigorous credit and size criteria that of course SME sector firms simply can’t meet.

SME firms are focused on more mundane issues, reducing their payables, purchasing more inventories, and meeting employee obligations. When actual working capital runs low of course our whirligig kicks in! It’s the constant battle to replenish working capital.

Working capital for your business consists of your cash on hand, your borrowing ability, and of course receivables and inventory.

The rudimentary way that those textbook guys and accountants calculate working capital is to divide current assets by current liabilities on your balance sheet .We’ve never really like this calculation because it doesn’t truly reflect the flow of funds in an out of your business . (A calculation called the operating cash flow calc does this much better). For instance if your sales are flat or slowing down and your receivables and inventory are building up your working capital current ratio calc is higher, but the reality is that your real cash flow is getting worse . And that’s a problem.

Working capital solutions in Canada are available but they are somewhat more limited in nature than many Canadian business owners and financial managers think. Business lines of credit to cover business cash flow for start ups or small businesses rely heavily on the business owners personal assets. Canada’s crown bank corporation offers working capital term loans, but significant emphasis is placed on owner equity and cash flow ratios.

The real world solutions available in Canada in 2011 for funding business cash flow are as follows; sale leaseback of some of your assets, Chartered bank lines of credit, accounts receivable financing facilities, non bank asset based lending facilities (they combine your A/R and inventory and equipment into one business line of credit). Many Canadian firms utilize various tax credits which can also be monetized into cash flow and working capital liquidity.

Speak to a trusted, experienced, and credible Canadian business financing advisor on how you can avoid the whirligig of Canadian business cash flow. In today’s competitive environment you ability to survive is based strongly on ensuring your working capital life blood is healthy.



Stan Prokop – founder of 7 Park Avenue Financial -


http://www.7parkavenuefinancial.com


Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years – has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing .Info re: Canadian business financing & contact details :


http://www.7parkavenuefinancial.com/business_cash_flow_funding_working_capital.html

The Working Capital Lifecycle - Canadian Business Cash Flow Loans and Financing

It's all about the lifecycle. We think that’s a great way to look at how Canadian business owners and financial managers can look at the different stages of life their business is in - all of which relates back to business cash flow and working capital needs. The bottom line - Different types of loans financing options are available at different stages of your firms lifecycle.

Let’s examine what that lifecycle is about and how knowing what stage your business is in reflects the kind of working capital you need.

Start up firms grows from great or aspiring ideas. This is when capital is most often a real challenge, and the combination of owner equity and debt becomes the total issue for the entrepreneur. As the company starts to gain traction and grow revenues in the early years financing comes from both traditional and non traditional sources.

It's important to spend time at this stage in the lifecycle to determine the amount of capital you need, on items such as operations, inventory, facilities, etc. Doing your homework at this stage in the lifecycle will prevent many future problems!

Inevitably many firms face a growth crisis. This is one of the key areas of the company lifecycle we'll address in looking at some solutions to this often challenging time in any business owners life.

As the growth challenges are solved (hopefully) businesses transition into maturity and inevitably look to a transition of some sort - i.e. sale, divestiture, merger, wind down, etc. The bottom line, we've just walked you through the business lifecycle.

Who can assist you in the challenges of solving various challenges at different points in the lifecycle? Typically people such as your lawyers, accountants, bankers, and consultants and advisors are the ones with solutions.

When clients ask us about working capital and ' the bank ' we always only say one thing - it's the banker, not the bank. The ability to find a great commercial banker is worth its weight in gold .Your ability to find a competent and confident commercial banker who can point out the sources of traditional bank financing and then execute on them for you is invaluable.

Having collateral and assets is critical in a working capital bank borrowing environment. No matter how you look at it, in Canada that borrowing is also going to require both personal guarantees and potentially collateral outside of the business. You can’t escape that requirement in Canadian business cash flow loan financing.

Many of the clients we deal with either cant access traditional bank capital, or choose not to go that route for reasons of the guarantees and collateral we mentioned. That’s when non bank financing becomes an alternative solution.

Solutions such as receivable financing, working capital facilities, asset based lending, and financing of your tax credits can all ensure you have access to business cash flow. While some of these solutions are more expensive than bank financing they are more readily obtained and still improve your balance sheet and allow you to build your business.

It’s often the balance sheet which can help you determine which stage of the business lifecycle you are in. Your ability to expand, pay your short term bills such as suppliers, loans, etc are keys to the business lifecycle. Naturally larger more established companies have more assets, and ' wiggle room ' we can say to address working capital issues.

Good business cash flow solutions will make your company more viable at any stage of the business lifecycle. Your ability to borrow during any stage of the business lifecycle allows you to move forward to the next stage of transition in your company.

Want to discuss any working capital solutions, allowing to you plan, and not react to cash flow challenges. Consider seeking and talking to a trusted, credible and experienced Canadian business financing advisor for help in obtaining alternatives to address your cash cycles.




Stan Prokop - founder of 7 Park Avenue Financial -

http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years - has completed in excess of 80 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details :


http://www.7parkavenuefinancial.com/working_capital_business_cash_flow_loans_financing.html

Get A Fast Merchant Cash Advance And Business Cash Flow Loan in Canada

A merchant cash advance for business cash flow continues to grow and become more widely used in smaller sized firms in the Canadian business environment.

Smaller Canadian firms who do not have major investments in receivables and inventory do not have the financing alternatives enjoyed by their larger company counterparts. Larger corporations use the concept of securitization as a method of financing working capital and enhancing balance sheets. This type of sophisticated financing allows firms to improve liquidity and satisfy lender loan covenants.
Smaller firms, usually do to cost, lack of financial sophistication, and size are unable to utilize such alternative financing. Additionally, in the current 2009/2010 financial environment many firms are struggling with their ability to maintain bank credit facilities, let alone increase them!

The discounting of future sales, for cash today , allows firms to convert working capital into immediate cash. This comes with a cost which we will also discuss.

It is critical to note that when a firm sells, or factors, or discounts (they all mean the same thing) they retain no ownership or interest in the future sale .

Depending on how the merchant advance facility is structured they may or may not have responsibility for the ultimate non- collectibility of the account. Lenders address that issue in a variety of manners.

Smaller companies in Canada aren't able to enter to large multi year arrangements, with lower costs, that would allow them to achieve the benefits of a true securitization.
But ... ! .. you can sell sell future sales under a discounting agreement. This can be done with a minimum of cost and deals can be structured uniquely to the customers situation, and their is a lower cost and no reliance on lawyers, advisors, etc.
If used on a regular basis the merchant cash advance discounting process continually generates new working capital, allows the customer to generate better rates as time goes on, and, most importantly, relieves the financial stress of managing working capital.
It is very important to note that smaller companies have some distinct choices that on occasion the larger firms don't have. They can on a one time basis, or periodically choose to utilize this alternate financing method.
Ultimately the business owner does have to pay back the lender or generate sales that will allow the repayment .
Typically the costs in business cash flow financing vary greatly. Rates range from 1.5 - 3% on a monthly basis. Most customers view this as an ' interest rate ', while the lender tends to view it as discount rate.
Generally the facility can be set up in a couple of weeks! We have seen our clients set up a facility in a matter of days !
As we can imagine it takes the larger corporations many months (and many thousands of dollars) to set up their large dollar securitization facilities.



In summary, more and more firms are turning towards a merchant cash advance business cash flow loan to manage their working capital and liquidity challenges.
Firms are strongly advised to search out experts in this area who know the Canadian marketplace, as it differs substantially from the U.S. environment in this unique method of alternative financing.

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Stan Prokop - founder of 7 Park Avenue Financial -

http://www.7parkavenuefinancial.com

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years - has completed in excess of 50 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details :


http://www.7parkavenuefinancial.com/business_cash_flow_merchant_cash_advance.html