Maybe there is no day when Canadian business owners and financial managers do not hear about factoring receivables and financing receivables as the method of financing their business in Canada. Apart from its popularity and, we can say, it is relatively important in the Canadian business financing market, this financing mechanism is still rather understood.
What information needs to be known by business owners to assess whether factoring receivables, also known as invoice discounts, is a proper transaction? Also, are there mistakes and traps that must be avoided when considering this financing strategy?
Let’s check the answer to some of these questions. You can be forgiven for trying to find out why the first factor has increased to stand out from a time when no one has ever heard it! The answer to popularity is simpler and clearly from what you might think, and this is only that Canadian Chartered Bank increasingly difficult to fund accounts (and inventory of course) As far as their customers need this financing.
When you have a situation where the actual needs for acute financing, and the benefits and flexibility seems significant, it is not difficult to see the increase in the popularity of such a financing mechanism.
First of all, 99% of the time, factoring gives your company a greater loan level based on the level of receivables of your account. Enough 90-100% of you A / R under 90 days can be financed.
So, is this good news? Not necessarily, because we always meet clients who have chosen the type of funding or factoring wrong receivables, and, worse, finding them locked in their contract can’t get out. It’s not convenient for whatever size you can imagine.
Like the type of newer financing, the playing field is complex. You can be forgiven because you don’t know how many companies are a factor out there, how they walk, what are their own limitations, and, even to some extent, whether they actually have funds to survive, let your company. For that reason we cannot emphasize the need to work with credible, experienced and trusted professionals in this field.
Let’s talk about some nuances, we can call it the potential of ‘trap’ too, picking up the wrong factor partners. For a starter if you choose a company that itself is not customized properly, as we say, you might find that financing commitments made for you cannot be respected. Canada’s business has never had to think that Canadian pants banks can ‘run out of money’ but Canadian landscapes are somewhat filled with small and medium factor companies that do not have financial facilities to support their funding commitments in all places. It only re-establishing our ideas that trusted industrial experts will guide you to the best partner for your company.
Another problem, once again, we can call it a trap, to look for:
– locked in a contract
– Has a total factoring cost, or pricing, not reflected correctly in your term sheet
– Unreasonable deputy rates relative to the price you pay for invoice discounts
– Excessive notifications and intrusion with your customers, which are very prevalent in the US receivable factoring model (many Canadian factor companies are the company branch A.S.
So let’s recap. It’s just as more popular. This works because it provides funds where banks often cannot. If you do not understand who you are facing and various nuances of this type of financing become a burden, not a solution. Investigate this great financing mechanism, but make sure you know what you are facing.