Receivables purchasing financing in Canada. Thousands of businesses in Canada utilize AR financing when the economic climate and their particular situation does not allow them to ‘ extract ‘ the type of financing they need for their working capital and cash flow.
Is it really positive to stay ahead of the proverbial ‘ cash flow shortage ‘ 8 ball? We think there is and at the same time your firm may now be in a position to take advantage of growth opportunities it could barely even consider, let alone realize on previously.
So why is AR financing so misunderstood in Canada. Our own opinion is that its just simply poorly explained when it comes to the mechanics and the cost.
The reality is that if you know 3 basis numbers around your business, and they are numbers you should know you are in a position to determine the cost of financing A/R, and the opportunities you might be missing by not considering a receivables purchasing finance strategy.
Those 3 business elements we are speaking of are simply the size of your receivables, your day’s sales outstanding, and the interest or financing rate.
Let’s examine quick example. Let’s say your annual sales are 2 million dollars and you are collecting your money in 65 days, which certainly is a typical time period these days. And lets say you are being financed by a bank and the interest you are being charged is 5 %.
The Total cost to finance your A/R is, then, 2 Million dollars times 5% divided by 365 days= 17 thousand dollars.
So, is that a great number? Putting on our lawyer hat, we will ay ‘ it depends ‘. What you need to do then is determine what the average really should be for your company or industry based on its selling and collecting terms.
Rather then demonstrate another more complicated calculation lets just say that if you can reduce the amount of receivables you carry the impact of actual DSO can go a tremendous way to maintaining your company’s general cash flow health .
If managed properly a receivables purchase AR Financing program can fund all your short term capital needs. In fact you can consider growth opportunities that were never available before, while at the same time ensuring you can meet payroll, product purchases, and expansion.
In Canada AR financing is provided by independent commercial finance firms. For facilities in excess of 250k you can even get the true benefit of AR finance, which is immediate cash flow while at the same time maintaining full responsibility for customer relations, collections, etc.
If your company requires immediate cash and you are unable to obtain bank financing for any variety of reasons speak to a trusted, credible and experienced Canadian business financing advisor for your operating capital needs.