Canadian business owners and financial managers often ask about assessing various alternatives for overall business financing strategies. Financing Receivables – Factoring Receivables can be one of the foundations of creative alternative financial solutions for their business. We are sometimes hesitant to use the word ‘alternative’ because frankly this financing method becomes the mainstream because things can be obtained!
Canadian businesses can be financed in one of four different ways. You must be able to assess the method used in four categories and which, or that, it makes sense for your company.
The business is financed of course with your own equity of shareholders. Equity is expensive because when you give up, or sell ownership in your business, your overall position becomes runny and returning your investment is reduced.
Three other financing methods, as a substitute for ownership equity released are:
Debt is of course present in the form of good debt and bad debt – we will, as an example of categorizing a commercial mortgage as a good debt – the cash flow of working capital loans may be another example. However, the reality is that most business owners recognize the dangers of debt and how to increase leverage can be a two-edged sword.
Clients always ask us about ‘government grants and loans.’ In our opinion there are only two honorable grant / loan programs in Canada – SR & ED programs, and CSBF programs – the first is an unpaid grant, the latter is only a large government loan for financing and infrastructure equipment.
So it brings us to # 4- financing assets. Depending on the type of business and industry in your ass, including inventory, land, equipment, and receivables.
A very strong case can be made that # 4 is actually # 1 when it comes to working capital and cash flow financing. Just talking your assets need to be monetized in the best way to bring you liquidity.
Financing Receivables – Factoring Actually is the fastest and most efficient way to bring cash flows immediately to your business. Why it happens – just because it doesn’t involve debt that comes on our balance sheet, no payments made like in the scenario of loan types, direct cash flows, and reality, that if you have negotiated the facilities of the right factor then you control your cash flow requirements whole?
The benefits of financing factor facilities are very clear after you understand the process. Generally factor facilities, discount invoices or accounts receivable facilities can be negotiated within a few weeks from beginning to end. As far as your business is growing, you basically have succeeded in completing financing that gives you unlimited cash flows. We say without limits, because if your sales and receivables grow your cash flow and your working capital grow in key steps to that growth!
Cash flows and working capital of factor facilities can be used to increase inventory, take more orders for purchases and contracts, and, generally meet working capital guidelines.
The overall process for factoring facilities is simple. You sell some or all your invoices to your partner company. You receive a general 90% of the number of invoices on the same day as cash in your bank account. When your customers pay firm firm save ‘discount fees’ based on the total time needed by your customers to pay.