AR Finance is a very valuable method of financing a company in Canada. The process goes under various names, and there are some subtle and not so subtle differences in the terminology – aka the ‘ factoring of accounts receivables ‘. Other terms are receivable finance, invoice discounting, etc.

The arrangement is pretty basis, and in fact has been around hundreds of years. In Canada we appear to be ‘ catching up ‘! The arrangement is as follows – the finance firm enters into an agreement to purchase accounts receivable from your firm. That right there is an immediate well publicized benefit – even if your firm can’t access bank financing, or is a start up, etc you immediately have found the ability to finance your firm, based solely on your sales.

Although the actual ‘ cost ‘ of AR Finance seems to be subject # 1 when it comes to discussing factoring. This cost is balanced against some pretty major benefits – your firm now has pretty well all the cash it needs, supplier discounts can be taken to reduce up to half of your financing costs, and your competitors who seemed to be taking business away from you ( perhaps they are factoring also ?!) are now in your firms rear view mirror .

Oh and by the way, all the lending covenants and restrictions that come with Canadian chartered banks simply don’t exist in AR finance. Time is also critical to clients we talk to, and solid ar financing transaction can be completed in one or two weeks – if you’re dealing with the right parties or advisor.

There are three drivers that pretty well secure the fact that your firm could significantly benefit from ar finance – they are your ability to demonstrate good gross margins, reasonable overheads, and the ability to potentially increase your prices a bit or take supplier discounts at the other end of the spectrum.

Perhaps your firm is having some serious financial challenges; and at the same time you just might be experiencing a solid growth period in revenues. Even more so you might be coming out of a turnaround phase in your firm and you’re not quite ready for the bank yet. In those cases the cost of factoring of accounts receivables can easily be justified around the speed, flexibility, access to capital, etc.

Speak to a trusted, credible and experienced Canadian business financing advisor on how your firm can benefit from this accepted business financing strategy.