Your mission, should you choose to accept it? It’s finding a financing receivable strategy that works, is cost efficient, and allows you to mind your own business when it comes to this popular method of Canadian business financing!
Factoring receivables gains daily momentum in Canada – If you feel either confused, mis informed, or just generally out of sync with how this type of financing works and what it costs lets get you up to speed.
It’s actually not as complicated as you thing – on a daily, week, or monthly basis, (it’s your call) you provide your invoices and proof of delivery and shipment . And then here’s the good news, you receive cash, the same day, for those funds. Actually, to clarify, the amount of the advance on your invoices is actually 90% – you receive the rest of the funds, i.e. the ten per cent, when your customer pays – less the financing charge.
And we know from experience that clients want to always know and talk about that financing charge, so let’s clarify that point right away. First of all did you know that some of the largest corporations in Canada utilize this method of financing receivable portfolios? Their cost is often either the same as traditional bank financing, and in some cases less.
However the majority of business in Canada that seek out factoring receivables actually pay anywhere from 1 – 2.5% per month for the cost of factoring. But let’s be clear here, receiving those funds when you invoice allows you to maintain a totally positive cash flow, and at the same time continue to grow sales and profits. We also point out to clients that they are now in the enviable position of taking 2% discounts on all their qualified purchases with their suppliers, and, if they are really smart, can negotiate better terms and pricing from their suppliers on product.
We referenced the term C I D when it came to our favorite, and recommended financing receivable solution. So what exactly is C I D? It’s a unique form of factoring, that by the way, costs the same as other types of factoring receivables financing. However, unlike traditional A/R financing it allows you to bill and collect your own receivables on a confidential basis. Your suppliers, clients, etc are simply not aware of how you are financing your company, and we think that’s important. C I D is the acronym we provide for Confidential Invoice Discounting. So again, to clarify, you are financing your business on a confidential basis – your competitors who use this type of financing are not. That’s your key advantage, and we think it’s significant.
Selecting a receivables financing partner can be a challenge – simply because there’s hundreds of small and larger firms out there with difference criteria. You have to be able to distinguish between recourse and non recourse factoring, and if the firm even offers (or has heard about!) C I D financing. Other factors (pardon the pun) to consider are the size of your portfolio, misc fees that add up quite frankly, and must be understood or negotiated. And pricing is reflected to a certain degree by the size of your monthly receivable financing. A/R portfolios of 250k per month generally receive better pricing and structures.
Interested? Confused? Hopefully not the latter, but if you are seek out a trusted, credible and experienced Canadian business financing advisor who will steer you through the financing receivable maze – we’re sure you’ll come out the other side well informed and with a factor facility that works best. BOLA TANGKAS