subject: Factoring Financing Best Accounts Receivable Financing Solutions For Canadian Firms [print this page] Factoring Financing, also known as invoice discounting in Canada is a lesser known by very important part of the Canadian business financing mosaic. Increasingly it is a major source of business financing and funding form small and medium sized companies in Canada. (We would also add that a form of factoring is utilized by many of Canada's major corporations also)
When Canadian business owners and financial managers think of financing their receivables historically they have thought of a bank 'overdraft 'or an 'operating line of credit '.
With today's low rates those facilities (when you can get them) are among the best financing facilities in Canada from a viewpoint of cost of capital. However, many new, smaller, and even medium sized established firms cannot meet the criteria that our chartered banks require to get such facilities in place. This is very simply because these type of facilities require excess collateral, strong personal guarantees, and the ability to meet various ratio and covenant formulas that the banks wish to have as back up collateral to their lending decisions .
Factoring financing or the immediate discounting of your receivables provides your firm with a greater level of borrowing against what is often your largest current and most liquid asset, you're A/R.
When clients come to us looking for a factoring facility we are very clear that the largest challenge is not getting them that facility, but moreso, getting the right facility. The Canadian factoring landscape is littered with many firms who have facilities that don't meet their needs from a cost perspective, but more importantly, getting a facility that meets the ways in which they do business in their own industry and geography.
In Canada there are hundreds of small and large factoring companies (think of it, there are only 6 or so charted banks!). What most business owners don't know that these firms are either very small privately funded independents, or, alternatively, subsidiaries of large branch operations in the U.S. and the U.K.? The later, the U.S. and U.K. firms have brought their way of doing business into Canada, which is not always, in our opinion, what works for your firm.
Also, many Canadian business owners don't also realize that they can compliment, with the right partner firm, their receivables with an inventory and equipment facility in some cases that can immediately double your available liquidity from a viewpoint of cash flow and working capital.
The main challenge we see for business owners, is their inability to navigate the difficult terminology and jargon of this relatively new type of financing in Canada. Business owners can therefore be forgiven that they don't know what the following terms mean, and what impact they have on your business.
-Discount rate
-Advance Rate
-Borrowing Base
-Notification
-Holdback reserve
Guess what? These terms have a huge impact on why you're factoring financing and invoice discounting facility will be a success or failure.
Business owners prefer, when they have the choice, to be well informed. They also want to take advantage of products and services, (in our case financing) that maximizes the benefits they are looking for.
Speak to a trusted, credible and experienced advisor in the area of factoring financing. Understand why this type of financing is working in Canada, and more importantly, how it can help your firm grow revenues and profits.
