Factoring Receivables: Alternative Solutions Via Canadian Financing Companies

Business.com / Finances / Last Modified: June 12, 2017
Photo credit: everything possible/Shutterstock

Here is information on key benefits of factoring receivables for Canadian companies and why this type of business financing can help you get out of the self-financing cycle that holds back growth and profits.

Factoring receivables is all about knowing you've made the best choice for your Canadian business financing needs. Business owners and financial managers have to pick the best firm to facilitate their funding and like most business folks they want to know they have made the right decision. Let's dig in.

First, let’s recap why accounts receivable financing works, and more importantly, how to select the best companies to work with based on your own needs.

There are numerous reasons why you might want to use a factoring receivables strategy to finance your business. The best reason you can have is that you are growing and growing quickly! In this situation you are unable to achieve the sort of traditional financing you need to run and finance your business on a daily basis.

Simply speaking working capital and cash flow become your overwhelming priority on a day to day basis, and that shouldn't be the case!

So, you've identified invoice factoring and financing as your solution - but more importantly you also want to know how it works and how it will both affect and benefit your business on a day to day basis. The reality is that if are a small and medium sized business owner in Canada you are probably relying heavily on what the finance folks call a "self-financing" strategy. That simply means that you are only using your existing cash flow to finance your growth and profits; you are not in a position to, or don't want to, take on more debt for your company.

Enter receivables financing companies!  They finance your accounts receivable on a daily, weekly or monthly basis (it’s your choice!) and provide you with same day cash flow as soon as you have generated a valid sale and invoice. Bottom line, you're just cash flowing your sales.

Why then does this strategy appeal to Canadian business owners? Simply because you are not creating debt on your balance sheet, and the personal guarantee situation is all but eliminated and you have the ability, (if you choose the right partner firm) to exit this financing at any time.

So, it all seems like a perfect world, right? Well in business it doesn't work that way, as there are pitfalls and mistakes you need to avoid when utilizing a factoring receivables strategy. For example, be careful who you partner with. You need a firm that meets your needs geographically, with competitive rates, and the ability to transact with you on a daily basis.

Our recommendation? A Confidential Receivables Finance solution. This allows you to bill and collect your own receivables, finance them when you want, and receive the same rates as your competitors who are using what we call "old school" factoring. In the case of old school factoring, customers are contacted for payment by the factor firm, and this is unappealing to many Canadian businesses.

Whether we like it or not, our clients always focus on rate when talking about a move to companies that will finance their receivables. Factoring rates are perceived as more expensive but in many cases when you factor in use of funds, ability to grow your business, etc. The decision is not as difficult as you might think.

Speak to a trusted, credible, and experienced Canadian business financing advisor who is an expert in factoring pricing, picking the best solution for your firm, and negotiating pricing and fees and advances that work best for your future growth and profits.

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