Choices. Alternatives. Robert Johnson, an old blues legend wrote of being at the ‘ crossroads ‘ and had choices.
That’s what Canadian business is looking for more than ever when it comes to the Canadian business financing marketplace for small and medium size businesses. (We suspect the big guys want the same thing!).
If your business can’t obtain any (or enough) cash flow for business growth then receivable factoring just might be an option. Naturally you’re the client, so we’ll let you decide.
Clients always ask ‘ why can my firm obtain working capital financing via receivable factoring when we can via the bank. The answer is really not that mysterious – it’s a case of your new financing partner looking solely at the asset and not the big picture, which our friends at the bank tend to be focused on.
And don’t get us wrong, if you firm can obtain ‘ all ‘ the financing it needs from a Canadian chartered bank you clearly have the ultimate cash flow security in place… however the reality is that we havent really met many of those firms in the tumultuous environmnet post 2008-2009 global business financial meltdown.
So yes, the cost of factoring in general is more expensive (in some cases it actually might be cheaper!) but with receivable factoring your are operating your business in an entirely different manner.
As a Canadian business owner and financial manager you should not feel embarrassed that you haven’t heard a lot about receivable financing via a factoring working capital facility. It’s been around as a financing tool for quite some time, but it’s been a little under the radar, and oft considered an alternative tool for Canadian business financing.
Essentially it is the sale, on a one of, or ongoing basis (it’s your choice) of your receivables to a third party. You receive funds instantly, and we mean basically same day! And the total focus is very simple and straightforward – the transaction is only about the value of your receivable, its not additional debt for your balance sheet, and it monetizes your receivables to the extent that you choose.
Control is the key word here, as you control what you need to borrow, when, and what those funds will be used for. Traditionally all our clients use the funds for just one purpose – financing their business for more growth and profits.
Perception is often confused with reality, and the perception is that a receivable factoring strategy to generate cash flow for business is expensive. Yes, no… Maybe! The cost of this type of financing tends to be in the 1-3% per month range. What many of our clients miss is that putting yourself in this type of facility assures you unlimited sales and profit growth. Your investment in receivables (and inventory) has essentially been monetized on a long term basis. Also, the funds you obtain from this type of financing allow you to take supplier discounts, enhance supplier relationships, purchase smarter and in larger quantities, and increase your A/R and inventory turns, which technically play a huge role in your return on equity.
So, is receivable financing and factoring your working capital solution for business cash flow – only you can decide, but you do have choices and alternative you previously might not have been aware of. Speak to a trusted, credible, an experienced Canadian business financing advisor to ensure you choose the right method of financing when you’re at the crossroads!