Receivable Financing – Factoring Is the 4th Way To Finance Your Company

Canadian business owners and financial managers often ask about assessing the different alternatives to their overall business financing strategy. Receivable financing – factoring can be one of the cornerstones of a creative alternative financial solution for their business. We sometimes hesitate to use the word ‘alternative ‘because quite frankly this method of financing is becoming as mainstream as things can get!

Canadian business can be financed in one of four different ways. You need to be able to asses the methods utilized in those four categories and which one, or ones, makes sense for your firm.

Business is financed of course by your own shareholder equity. Equity is expensive because when you give it up, or sell ownership in your business your overall position becomes diluted and your return on investment diminishes.

The three other methods of financing, in lieu of equity of ownership relinquishing are:

Asset Financing

Debt of course comes in the form of good debt and bad debt – we would, as an example categorize a commercial mortgage as good debt – a cash flow working capital loan might be another example. However, the reality is that most business owners recognize the dangers of debt and how that increased leverage can be a double edged sword.

Clients are always asking us about ‘governments grants and loans.’ In our opinion there are only two respectable grant/loan programs in Canada – the SR&ED program, and the CSBF program – the former is a non repayable grant, the latter is simply a great government loan for financing equipment and leaseholds.

So that brings us to # 4- Asset financing. Depending on the type of business and industry you are in your asses include inventory, land, equipment, and receivables.

A very strong case can be made that #4 should in fact be #1 when it comes to working capital and cash flow financing. Simply speaking your assets need to be monetized in the best manner in which to bring you liquidity.

Receivable financing – factoring is in fact the quickest and most efficient manner to bring immediate cash flow to your business. Why is that the case – simply because it involves no debt coming on our balance sheet, no payments are made as in a loan type scenario, cash flow is immediate, and the reality is, that if you have negotiated the right factor facility then you are in control of your overall cash flow requirements?

The benefits of a receivable financing factor facility are very clear once you understand the process. Generally a factor facility, aka an invoice discounting or receivable financing facility can be negotiated in a couple of weeks from start to finish. To the extent that your business is growing you essentially have successfully completed a financing that gives you unlimited cash flow. We say unlimited, because if your sales and receivables grow your cash flow and working capital grow in lock step to that growth!

Cash flow and working capital from a factor facility can be used to increase inventory, take on more purchase orders and contracts, and, in general meet working capital guidelines.

The overall process for a receivable financing – factoring facility is simple. You sell some or all of your invoices to your factor partner firm. You receive generally 90% of that invoice amount that same day as cash in your bank account. When your customer pays the factor firm keeps a ‘discount fee ‘based on the total time it took your customer to pay.

Discount fees, or as clients prefer to call them, ‘factoring rates ‘vary in Canada. Factors (excuse the pun) that affect your fee are the size of facility, who you deal with, the method in which your facility operates, and the overall quality of your customer base.

Speak to a credible, trusted, an experienced business financing advisor – Find out today why the 4th method of financing your business might just be the best!

Specialization In Finance Is Most Desired Amongst MBA Students!

Specialization in MBA-finance is perhaps the most desired and sought after finance courses in India. More and more aspiring MBA students opt for courses in finance as their first choice. But why choose MBA finance over other fields in business administration? The answer is very simple! The changes in the Indian economic scenario and a rise in the financial sector combined with lucrative opportunities have made finance one of the favourite choices amongst students.

Moreover cutting edge technologies, advanced business strategies and the need to always stay ahead of your competitors have increased the want for business houses to take accurate financial decisions. And with a degree in finance, individuals can help various organizations take important and valuable financial decisions according to market trends. Also, with MBA finance programs, individuals get the chance to enhance their knowledge on financial topics and also increase their chances of better career opportunities.

The demand for finance professionals is not only apparent in India but also in the international market as well. There are various reputed MBA colleges and business schools that offer courses in finance to help students learn the methodology and strategies of the finance and banking sector. Most of these institutes offer a curriculum that focuses primarily on the recent business trends, banking strategies, financial instruments etc and includes extensive practical classes, assignments, case studies and workshops.

Choosing a renowned MBA institute is very important that offers the requisite knowledge and helps students to face the competitive industry with full confidence. Numerous students, on successful completion of these courses have received lucrative offers and joined Indian as well as top international companies. Different courses of finance can help students to land up in the sectors of corporate finance, risk management, insurance sector, Insurance manager etc. The demand for qualified and smart finance professionals can never go out of demand with vast career scope and immense opportunities. Therefore the need for effective and well designed courses in finance is mandatory to churn out intelligent, well read and extremely knowledgeable students who can take the industry by storm.

Purchase Order Financing and Factoring

Can you relate to the following statement a client once shared with us: ‘Getting working capital financing for my orders and contracts actually is harder than getting the order itself?’

Your firm has the order and contract, now you just need to fulfill it to complete the job and get paid of course. It is the working capital and cash flow that come out of those contracts and orders that will of course help you grow sales and profits.

So how does purchase order financing and P.O. Factoring work in Canada? And is it actually available?! The answer to those two questions follows.

Purchase order financing or factoring provides you with capital for the key elements of your business, i.e. Product purchases, payroll, and working capital to carry receivables. Most clients we meet in the purchase order finance area have what can only be describe as the best and worst of problems – that is to say they have the order, they just don’t have access to the capital to complete the order or project. You also don’t want to strain your relationship with key suppliers, while at the same time you strive to deliver your product or service on an ‘on time ‘basis. Naturally your ability to accept larger orders enhances your overall competitiveness within your industry, and larger orders usually translate (hopefully!) into larger profits.

Canadian business owners and financial managers consider purchase order financing and the factoring of their purchase orders, but at the same time they don’t want to take on additional debt, or give up ownership of their business to an investor / partner.

So how does this type of financing work in the day to day real world. You have a P.O. and contract from a legitimate credit worthy company – More often than not some of these clients can actually be outside of Canada – we see that all the time. The purchase order finance firm provides you with the minimum amount of capital you need to complete the orders. Many times this simply involves making payments to your supplies on your behalf.

Therefore the benefits of this type of Canadian business financing are very clear – your company can complete orders/contracts it might otherwise have been forced not to accept – no business owner hates to turn down business. You can often also leapfrog a competitor of similar size to yours by simply the ability to finance orders the competition might not be able to.

You could enter into long term working capital or cash flow loans, but these typically involve payments that are fixed over 3-5 years. Although purchase order financing is generally quite a bit more expensive than bank financing it allows you to do short term financing without taking on additional debt on your balance sheet.

In some cases the PO finance or P O Factoring firm could be asked to issue a letter or credit to a supplier on your behalf – that is also a common p.o financing and factoring strategy that achieves similar objectives.

Speak to a trusted, credible and experienced business financing advisor who can provide you with information on how PO financing and factoring works, how you access it, and who can also assist you in determining if the cost of the financing meets your business and financial objectives.