Contract payment financing in Canada. Here’s a shocker for you (not!) Generating sales revenue does not equal cash! And if you’re in the contracts finance business there’s an even longer lag than usual. Can this be addressed? Yes, in a number of manners, both internally at your firm, and externally through proper financing. Let’s dig in.

If you’re fortunate enough to be in an ‘ all cash ‘ business your investment requirement in accounts receivable is… Nil. Businesses selling on standard commercial credit terms typically have 30 days terms, and receivables tend to be collected usually within 30-60 days. Businesses selling under contracts with clients find themselves in a unique position; they are required to pay for materials, wages, and other goods and services while waiting for payment under the terms of their longer contracts with clients.

If proper contracts and contract financing is not put in place those businesses are challenged to create additional revenues, let alone maintain their commitments to suppliers, banks and commercial lenders.

Businesses that have proper contracts in place with reputable clients are actually in a better position than they might think. The trick is to ensure that your lender understands the nature of your payment structure and that your payment rights are properly assigned in order that they can be financed.

Monetizing your contracts, if done successfully allows you to finance contracts properly and invest in more projects. The key to proper financing of your contracts is not necessarily your balance sheet – rather it’s your credibility and expertise to complete your contracts, bill them properly,

Typical reasons for contract/PO financing are as follows:

Your traditional lender/bank is unable to accommodate financing of this type

Suppliers insist on some level of pre payment

Large contracts are being turned down by your company due simply to lack of financing

Additional debt and equity financing are either not available or not desirable

Your firm’s invoices to your clients can be monetized directly into cash in one of two ways. They can be cash flowed with immediate funding via an asset based line of credit, or alternatively, suppliers can be paid directly via a PO FINANCE/SUPPLY CHAIN facility.

The benefits of a properly structured CONTRACT FINANCE facility are key. They include:

Vendor and Supplier Satisfaction

Ability to take on significant revenue projects not previously considered
Pricing power via supplier discounts

Properly structured financing wont be prejudicial to the type of industry your firm is in. Unfortunately many firms find themselves out of favor when it comes to their search for traditional contract finance. That shouldn’t be the case if done properly. In some cases the easiest way to resolve contract funding is to simply have your client acknowledge that the work you have billed for has been performed/received. What could be easier than that?

By the way, in the technology industry many contracts can also be financed under recurring revenue streams your firm bills – that might be software as a service, long term service contracts, etc.

Bottom line, don’t let the inability to finance contracts hinder your sales growth and financial progress. Seek and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with contract payment financing solutions.