by Stan Prokop

Created on: February 14, 2011

Knowing you are making the right choice in factoring receivables for your Canadian business is half the battle. You then have to pick the best firm to facilitate your transaction, and like most business owners you want to know you have made the right decision.

 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 a factoring receivables strategy to finance your business. The best reason you can have is that you are growing! And growing quickly - Because in that situation you are unable to achieve the sort 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 have identified invoice factoring and financing as your solution - but more importantly you also want to know how it works and how it will both affect and benefit your business on a day to day basis.  The reality is that if are a small and medium sized business owner in Canada you are probably relying heavily on what the finance folks 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 don’t want to... take on more debt for your company.

Enter at stage left receivables financing companies!  They purchase your a/r a daily, weekly, monthly (it's your choice!) basis and provide you with same day cash flow as soon as you have generated a valid sale and invoice .

And why does this strategy appeal to Canadian business owners? Simply because you are not creating debt on your balance sheet, and  the personal guarantee situation is all but eliminated and you have the ability, ( if you choose the right partner firm ) to exit this financing at any time .

So, it all 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 you need to avoid when utilizing a factoring receivables strategy.

So what are those mistakes you should not make? Partnering... you need a firm that meets your needs, both geographically , with competitive rates, and the ability to transact with you on a daily basis. We strong recommend what we call a C I D solution, which is the acronym for Confidential Invoice Discounting. This allows you to bill and collect your own receivables, finance them when you want, and receive the same rates as your competitors who aren’t using this C I D strategy. In their case their customers are contacted for payment by the factor firm, and this is unappealing to many Canadian businesses.

Whether we like it or not our clients always focus on rate when talking about a move to companies that will finance their receivables. Factoring rates are perceived as more expensive but in many cases when you factor in use of funds, ability to grow your business, etc. the decision is not as difficult as you might think.

Speak to a trusted, credible, and experienced Canadian business financing advisor who is an expert in factoring pricing, picking the best solution for your firm, and negotiating  pricing and fees  and  advances that work best for your future growth and profits .

Learn more about this author, Stan Prokop.
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