Knowing that you are making the right decision when factoring accounts receivable for your Canadian business is half the battle. Then you need to choose the best company to facilitate your transaction, and like most business owners, you want to know that you’ve made the right choice.
Let’s recap why A/R 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 an accounts receivable factoring strategy to finance your business. The best reason you can have is that you are growing! And grow quickly: because in that situation you can’t get the kind 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 yes… you’ve identified factoring and invoice financing as your solution, but more importantly, you also want to know how it works and how it will affect and benefit your business on a day-to-day basis. The reality is that if you own a small and medium-sized business in Canada, you are probably relying heavily on what finance people 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 do not want to, take on more debt for your business.
Enter the stage left of accounts receivable finance companies! They buy your a/ra daily, weekly, monthly (you take your pick!) and provide you with same day cash flow as soon as you have generated a valid sale and invoice.
And why does this strategy attract Canadian businessmen? Simply because you’re not creating debt on your balance sheet, and the personal guarantee situation is completely eliminated and you have the ability (if you choose the right partner company) to get out of this financing at any time.
So, everything seems like a perfect world, right? in effect, the perfect business financing situation. Well, in business it doesn’t work that way, there are pitfalls and mistakes to avoid when using an accounts receivable factoring strategy.
So what are those mistakes you shouldn’t make? Partnering… you need a company that meets your needs, both geographically, with competitive rates and the ability to transact with you on a daily basis. We strongly recommend what we call a CID solution, which is an acronym for Confidential Invoice Discounting. This allows you to bill and collect your own receivables, fund them whenever you want, and receive the same rates as your competitors who don’t use this CID strategy. In your case, the factor company contacts its customers for payment, and this is not attractive to many Canadian companies.
Like it or not, our clients always focus on rate when talking about moving to companies that will finance their receivables. Factoring rates are perceived as more expensive, but in many cases, when you factor in the use of funds, the ability to grow your business, etc., the decision isn’t as difficult as you might think.
Talk to a trusted, credible and experienced Canadian business financial advisor who is an expert in price factoring, choose the best solution for your business and negotiate prices, rates and advances that work best for your future growth and profits.