Receivable finance in Canada can be a valuable strategy for Canadian firms in search of alternate finance methods… that work.

There are 6 things you need to know about this type of working capital loan (it’s not a loan per se), so let’s examine what you need to know about invoice finance in Canada.

For our first point we can simply that that we are sure there are thousands of Canadian firms who probably haven’t even heard of this method of financing their business. When that is the case you can clearly say that lack of awareness leads to a general misunderstanding on the benefits of A/R finance, how it works, and how it stands up against other forms of business line of credit financing.

Secondly, and we’re the first to admit it, that lack of awareness sometimes seems to tarnish the image of invoice financing. ‘How we could have not heard of this before, my bank never told me about it ‘… that’s a constant comment we get all the time. Coupled with that fact is a general image problem around receivable finance, in that there is a perception, sometimes, that your firm has to be in difficulty to use this finance strategy. There is nothing more incorrect than that, and the proof we offer up is that some of the largest companies in the world utilize this strategy as part of a sophisticated method to finance their corporations. Enough said.

Cost also factors into one of our key things you need to know. Because A/R financing isn’t a loan or term debt of any nature it’s priced a bit differently than the Canadian business owner and financial manager might think, as they associate an ‘ interest rate ‘ with anything to do with financing. In fact the way A/R finance is structured it is in fact an ongoing sale, at your option, of your sales invoices as you generate them. That sale is structured as a discount purchase by your financing firm partner and in Canada typically is in the 2% per month range, sometimes less, sometimes more. So on a 10,000 $ invoice as an example you pay 200$ if your terms are thirty days and the account is collected within terms.

The bottom line is that A/R finance pricing is in fact a huge stumbling block to many clients, but only when they don’t understand it.

Our fourth point is that if your sales are in a downward spiral this method of financing doesnt necessarily works, because in an invoice working capital financing strategy such as this your only liquidity is in fact your sales. If they’re growing, great, if not your flexibility to generate cash flow is diminished.

Point 5. Not every business sector in Canada can utilize our strategy. If you’re in a Business to Consumer model retail/consumer receivables can’t really be financed. And similar to business banking credit underwriters do attach a certain amount of risk to different industries which fall in an out of favor, or are constantly out of favor!

Finally, complexity! That’s our 6th point today and we think its easiest one to fix. Yes, if you haven’t heard of the strategy around receivable finance then it might seem complex. Picking a partner is even worse perhaps , What firm is best for you as the lay of the land is littered with U.S. and U.K. firms, small Canadian firms, larger corporations domiciled in Canada. Some or limited by size of financing you require, or their geographical location.

Also, who is going to give you the straight goods on which method of invoice receivable finance works best (We favor confidential A/R finance), how pricing is determined, and how the facility works on a day to day basis.

The solution. Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in crafting the facility that meets your working capital financing needs.