Liquidity in Canada for many Canadian businesses is often ‘ fixed ‘ by Receivable Finance… commonly known as factoring… for business cash flow.

It’s not financing per se, in the way that a bank finances receivables, its a form of finance that allows you to sell, individually, or in bulk, on a regular basis your a/r… for immediate , and by that we mean ‘ same day ‘ cash flow. That’s the key perceived benefit by many business owners and financial managers.

In explaining the process to clients it has become clear over time that a good way to describe this method of working capital finance is simply to view the cost of the financing as a ‘ premium ‘ you pay in order to achieve constant cash flow .

That ‘ premium’ is viewed as expensive by many, however we maintain that its important to understand the terms , mechanics and benefits before we rush to judgment on what we have called the ‘ ouch factor ‘ … a/r receivable finance pricing.

There are just so many little in’s and outs of this method of financing that its important to separate what is important vs. what is not.

So what are some of the misperceptions around this method of cash flow finance? One is that it is an all or nothing scenario and that can’t be farther from the truth. If you are working with the right firm ( key word ‘ right’!) you should be in a position to finance what you want and when . You should not be dealing with a firm that insists that you finance all your receivables all the time, as some players are want to request.

One of the biggest challenges we see in A/R Finance is the fact that many Canadian businesses don’t view A/R financing as an interim solution. So they feel locked in and unable to address other financing at some future point in time.

The reality that we see day in and day out is that firms often progress to the point that they are now eligible for what they consider more traditional types of financing. If you are dealing with the ‘ right ‘ firm, (there is that key word ‘ right ‘ again!) you should not have any sort of penalties to exit a facility.

If your firm is not interested in a confidential financing facility, allowing you to bill and collect your own receivables you might find one very significant advantage to that ‘ PREMIUM ‘ we have talked about . That is simply that many firms can choose to have the factor finance firm administer their entire credit and collection policy. This alone can save many thousands of dollars and offset a lot of the ‘ premium ‘ paid to factor invoices in Canada.

Remember also that if you have one, or many larger ‘ blue chip ‘ type firms as clients you have just hit cash flow nirvana, as receivable financing is unlimited when it comes to credit worthy customers. If you clients aren’t credit worthy it’s a case of really assessing whether you should be doing business with them anyway.

So, we can debate with clients all day the actual true cost of the premium they pay to finance receivables, but it should be clear that a strong business case can be made for the benefits of this method of cash flow financing in Canada.

Speak to a trusted, credible and experienced Canadian business financing advisor on whether you should, or should not finance your company in this manner.

P.S. You just might be surprised!