Accounts Receivable Factoring Companies | Accounts Receivable Factoring

Canadian business owners and financial managers are hearing more and more about the concept of 'factoring 'their accounts receivable as a cash flow solution and overall strategy. Increasing numbers of companies are investigating what most people consider to be an 'alternative financing' strategy.

'Alternative 'clearly is in the context of alternative to a Canadian chartered bank line of credit. As Canadian companies build up their investments in accounts receivable ( and inventory ) they are finding it more difficult than every to ensure that their customers are paying them on time, typically not receiving those payments in 30 days per the terms they provide to their customers . Naturally the current somewhat difficult economic environment as we head into the 2010 Business year lends itself to slow paying receivables. Management therefore is paying more and more attention to managing cash flow, and, most notably, this is taking more and more of senior management and business owner time.

The basic challenge is as simple as it gets – suppliers, landlord, and, dare we say it, your employees want to get paid on time , while the source of that cash is tied up in receivables that are paid in , many times 60-90 days.

Enter Factoring as a potential solution that will allow the Canadian company to benefit from increased cash flow, albeit at a cost. Just to be clear, the term factoring is also referred to as 'invoice discounting' and 'accounts receivable financing '.

The mechanics at the outset seem overly simple . You send your invoice (or invoices) to the 'factor' firm who immediately, usually same day, sometimes next day, issues you funds for that invoice or group of invoices. All of a sudden you immediately have the working capital and cash flow to run your business.

Let's be clear, this is not a loan per se. It is an immediate advance of funds against money owing to your firm for products and services you have delivered. We used alternate term 'invoice discounting' as noted above. The 'discount 'referred to be the amount of the finance charge the lender keeps for carrying the receivable.

We cant over emphasize the fact that the funds generated from an accounts receivable financing facility such as we have describe should be used for short term working capital needs . You need to view the factoring facility in exactly the same manner as your bank line of credit (if you had one!)

So more about the potential 'benefit 'of factoring that we have alluded to. We can somewhat easily say that a factoring facility can be set up in fairly short time, certainly in much less time than it would take for your firm to negotiate a bank cash term loan or a Canadian chartered bank line of credit. Another benefit? It's simply that you receive that much needed cash same day. A very significant amount of the invoices, usually 80-90% is 'advanced 'to your firm the same day. The difference is held back as a temporary holdback, and remitted to your firm, less the finance fee, when you customer pays.

We have focused on some of the benefits of factoring, such as the strong cash flow aspect of this type of facility, and its ease of set up once you have found a solid partner firm. However, the cost of the facility is usually between 1 -3% of the invoice amount for a 30 day period – Naturally you entered into such a facility because your customers probably weren't paying you in 30 days already, so you can see that the financing fees can add up .

So, as in all business evaluations there are trade offs – if you firm can absorb the financing costs with adequate profit margins on your products and services you can categorically benefit from a factoring, a ka working capital facility .!

Invoice factoring refers for the process in which smaller companies sell invoices to become able to obtain funds these days. In this case they do not need to wait for a credit period of 30, 60, or 90 days. Thus by selling invoices smaller firms tend not to generate debt. This exercise of invoice factoring is basically employed as a finance management tool.

This practice of invoice factoring is usually adopted to avoid any loans or giving any collateral against availing any loan. The fee for invoice factoring is paid in terms of discount. This discount can ranger anywhere between 2.5% to 7%. Like a result of invoice factoring the smaller companies prevent exhibiting any loans on their balance sheets plus they also do not have to invest any interest for the money taken. This results in much better profit figures but slightly different with purchase order funding.

A number of businesses also assist tiny companies in invoice factoring. These businesses set up the firm with the perfect factor for any distinct factoring circumstance. If a person has an invoice or any receivable to become factored then these firms come out to assistance within the same.

These businesses assist the manufacturers, distributors, importers, exporters, wholesalers, contractors, suppliers etc equivocally. They also support truckers in construction invoice factoring. These organizations assist to locate ideal aspect for any particular predicament within the area or can also aid to select from nationwide factoring organizations to avail the finest rates. They usually customized solution as per the clients need. To avail the services of such firms firstly a form needs to become filled out stating the type of receivables and other details needed for invoice factoring. Then these companies approach the probable paying parties that avail invoice factoring. Some of these organizations assume the risk inside the deal for non-recourse factoring wherever the client is not required to spend back.

You will discover various sorts of organizations with distinct forms of rates for factoring. Any invoices or receivables towards amount of $100,000 may be factored instantly. The average rate payable for discount in such cases is 2-5%.

Some companies specialize for a particular category of invoice factoring. For instance, some businesses indulge only in invoice factoring for medical business. Some firms, which cater to little and medium businesses for invoice factoring, build invoices on the net and acquire immediate funding. They usually give a 24 hours turnaround. Other kinds of businesses also give funds to small firms for their day to day operations against collateral of their invoice or buy order. These types of organizations also purchase mortgage notes, structured settlement annuity or medical receivables.

From Entrepreneur:

Say you're a young startup–growing fast, but with little-to-zero positive cash flow–and you're straining to reach the next level or just to get through the end of the month. The bank-financing drought is showing no sign of letting up, and of course credit lines are reeled in tight.

What's the answer? For a growing number of startups, it is factoring. The practice involves a financing company, or “factor,” advancing you money based on its buying your receivables at a discount; your customers pay the factor the full value later, when the bill is due. Factoring gets you cash in hand immediately–but at a steep price. Factoring fees are much higher than interest rates charged by a commercial bank. Fees are quoted by the month, so a typical 3 percent fee is actually the equivalent of a 36 percent annual interest rate.

Dealing with a factor can also be much more difficult than with a commercial bank. Banks are highly regulated, offer competitive rates and commoditized lending services, so entrepreneurs can, with few exceptions, easily anticipate the cost and terms of their loan. But factoring is very fragmented. Most factor financing is provided by smaller, unconventional lenders. It is much less regulated and the quality, reliability and integrity of factors vary widely.

The reason more startups are turning to this more expensive, risky alternative is simple: It is often the only way to get cash. And if it is the route you decide to pursue, due diligence is the single most important step. Investigate how long the factor has been in business, where its offices and headquarters are and the background of its management team. Ask for referrals from current clients, and research complaints or lawsuits using web searches, the Better Business Bureau and the state's Attorney General's Office. Also, trust your gut: If you feel you can't build trust with the factor, don't pursue the loan.

If you go forward, review your contract with a magnifying glass, particularly these points:

• What is the duration of the contract? The shorter the better–ideally, month to month. You want to switch to less expensive financing as soon as possible.
• Will the factor negotiate? Some factors allow contract negotiations while others offer only take-it-or-leave-it documents.
• Must you provide a personal guarantee? This allows the factor to go after you and your assets to be repaid. Some factors will lend without a personal guarantee or on a “non-recourse” basis.
• Will the factor take possession of your receivables if they are uncollected? Probably not, which means you'll need to collect on your own. Be prepared: If receivables are uncollected, you'll need to repay the factor's advance or you may lose financing altogether.
• How will the factor notify your customers? Ideally, the factor will create a lockbox to accept payments in care of your company. You maintain day-to-day contact with your clients so that everything appears seamless and they are not aware of your financial situation.
• Will you be required to factor 100 percent of your receivables? Cash flow and collections patterns fluctuate, and some weeks you may not need financing. If your factor requires you to finance all receivables, you will pay dearly for financing even when you don't need it. Single-invoice or spot factoring allows you to opt out.
• Is there a minimum or maximum sales requirement? Some factors require a certain sales volume. If you are not within the limits, you may lose your financing–so the fewer restrictions, the better.

Finally, always keep the end in sight. The real goal with factoring is to improve your cash flow, increase liquidity and rebuild net worth to qualify for commercial bank financing. Commercial bankers can help you figure out the financial targets that can help you re-qualify, but it is up to you to create the plan.

As a commercial lender, I have seen businesses resort to factor financing for one or two years at the most. If the company still didn't qualify for bank financing at that point, chances are, it was already out of business.

From Entrepreneur:

Say you're a young startup–growing fast, but with little-to-zero positive cash flow–and you're straining to reach the next level or just to get through the end of the month. The bank-financing drought is showing no sign of letting up, and of course credit lines are reeled in tight.

What's the answer? For a growing number of startups, it is factoring. The practice involves a financing company, or “factor,” advancing you money based on its buying your receivables at a discount; your customers pay the factor the full value later, when the bill is due. Factoring gets you cash in hand immediately–but at a steep price. Factoring fees are much higher than interest rates charged by a commercial bank. Fees are quoted by the month, so a typical 3 percent fee is actually the equivalent of a 36 percent annual interest rate.

Dealing with a factor can also be much more difficult than with a commercial bank. Banks are highly regulated, offer competitive rates and commoditized lending services, so entrepreneurs can, with few exceptions, easily anticipate the cost and terms of their loan. But factoring is very fragmented. Most factor financing is provided by smaller, unconventional lenders. It is much less regulated and the quality, reliability and integrity of factors vary widely.

The reason more startups are turning to this more expensive, risky alternative is simple: It is often the only way to get cash. And if it is the route you decide to pursue, due diligence is the single most important step. Investigate how long the factor has been in business, where its offices and headquarters are and the background of its management team. Ask for referrals from current clients, and research complaints or lawsuits using web searches, the Better Business Bureau and the state's Attorney General's Office. Also, trust your gut: If you feel you can't build trust with the factor, don't pursue the loan.

If you go forward, review your contract with a magnifying glass, particularly these points:

• What is the duration of the contract? The shorter the better–ideally, month to month. You want to switch to less expensive financing as soon as possible.
• Will the factor negotiate? Some factors allow contract negotiations while others offer only take-it-or-leave-it documents.
• Must you provide a personal guarantee? This allows the factor to go after you and your assets to be repaid. Some factors will lend without a personal guarantee or on a “non-recourse” basis.
• Will the factor take possession of your receivables if they are uncollected? Probably not, which means you'll need to collect on your own. Be prepared: If receivables are uncollected, you'll need to repay the factor's advance or you may lose financing altogether.
• How will the factor notify your customers? Ideally, the factor will create a lockbox to accept payments in care of your company. You maintain day-to-day contact with your clients so that everything appears seamless and they are not aware of your financial situation.
• Will you be required to factor 100 percent of your receivables? Cash flow and collections patterns fluctuate, and some weeks you may not need financing. If your factor requires you to finance all receivables, you will pay dearly for financing even when you don't need it. Single-invoice or spot factoring allows you to opt out.
• Is there a minimum or maximum sales requirement? Some factors require a certain sales volume. If you are not within the limits, you may lose your financing–so the fewer restrictions, the better.

Finally, always keep the end in sight. The real goal with factoring is to improve your cash flow, increase liquidity and rebuild net worth to qualify for commercial bank financing. Commercial bankers can help you figure out the financial targets that can help you re-qualify, but it is up to you to create the plan.

As a commercial lender, I have seen businesses resort to factor financing for one or two years at the most. If the company still didn't qualify for bank financing at that point, chances are, it was already out of business.

Factoring in Canada provides Canadian business owners and financial managers with an alternative method of financing working capital and cash flow needs. A classic situations in which your firm would utilize this method of financing is when you are experiencing strong growth, or unable to finance daily working capital needs when you have significantly larger orders or contracts with either a new or existing customer . Factoring in Canada is the financing of good accounts receivable. The business model is simple to understand, but requires extra diligence on your behalf in choosing which technical method of factoring would work best for your firm.

We recommend non notification factoring to our clients, although that is only one of several methods available to your firm. Under the non notification method of factoring you are in total control of your receivables and working capital. You bill and collect your receivables in the normal manner that you always have, but at the same time, due to the way in which factoring benefits business, you receive instant cash flow and working capital as soon as you are able to generate a valid invoice to your customer.

The higher cost of this type of financing can in many cases easily be offset by smarter buying on your firms part, or taking advantage of discounts not previously available to yourself when you carried large receivable and inventory positions based on traditional customer payment habits of 30, 60, and yes even 90 days sometimes . If you have a customer that is paying in 60-90 days you can generate all the cash due from those sales 2-3 times via factoring, as opposed to getting paid once in the customers 60-90 day payment time to yourself .

Factoring is simply all about working capital turnover. Is factoring the panacea of total goodness for your firm. We tell clients that no one type of financing is always going to be the best long term solution for your firm , but quite frankly factoring is an excellent ' bridge ' to your next level of growth . That bridge is there because your firm is new, has financial challenges, or, as we noted, is growing too quickly to allow you to negotiate traditional bank financing.

So how do we 'cross the bridge 'our clients ask? The answer is to simply understand the following facts:

- Factoring is a solid immediate cash flow and working capital solution for Canadian business

- Factoring has a higher cost than traditional financing

- More often than not it should be viewed as an interim financing facility

- There are different types of factoring in Canada offered by different firms – Don't choose the wrong facility!

Factoring and receivable financing, (also known as invoice discounting) differs from traditional bank lines of credit. Depending on which type of factoring facility you use you in effect can have unlimited access to working capita. That is simply because this type of financing focuses on your assets themselves, not your balance sheet and income statement. In negotiating a bank line of credit the total focus is on yourself as owner, your balance sheet, your income statement, your industry, and your years in business.

Factoring places a much smaller reliance (in some cases none!) on those guidelines, and focuses solely on the following:

You have assets (receivables)

They are financeable today for immediate cash flow!

It's as simple as that.

So, in summary is it that easy? Yes. And no. We say no because the challenging in setting up a proper factoring facility in Canada is simply understanding the differences in the types of facilities that are set up on your behalf, how they work, how they are priced, determining if you wish to lock in to a contract or leave it open ended, and your overall comfort level with the day to day business model of factoring receivables as you generate sales. Speak to a credible, trusted and experienced business advisor in this area and ensure you understand how the benefits of this type of financing can be crafted into a facility that works for your Canadian firm.

invoice factoring

Factoring in Canada is four things:

- New and increasingly accepted

- Misunderstood

- Different than in the U.S.

- Growing more popular every day as an alternative vehicle to business financing

Canadian business owners and financial managers keep hearing about factoring , and when we talk to clients who are pursuing this financing option it is increasingly clear there is a lot of mis information and ' noise ' about this unique type of financing that needs to be clarified .

So why is there so much mis information about factoring and how can business owners in Canada get the 'real story '. Part of the problem is that factoring, in our opinion, means different things to different people, both within the industry itself, and also to the Canadian business owners. Similar to the terms ' cash flow ' and 'working capital ' the use of the term is interchanged in a variety of ways . Also, factoring isn't a home grown solution, and migrated to Canada from the U.S. and Europe, where it has been in place for hundreds of years.

Factoring, also know as receivables financing , or ' invoice discounting ' is best utilized when firms are growing rapidly, have sales and verifiable invoices, and require injections of working capital for that a/r investment that otherwise might not be available through traditional sources such as the bank . In 99% of cases that we deal with where a client is a ' start up ' the initial financing through a factoring facility is a critical and valuable tool in the early growth of the company .

Let's get back to the confusion around factoring. Traditional factoring in Canada is in fact simply the sale of your receivables, and their purchase to a factor firm. The most immediate benefit is the immediate receipt of cash, which eliminates the need to wait for anywhere between 30-90 days for payment from your customer. Over the years it is inherently obvious that every firm out there recognizes that delaying payments to your suppliers is an instant form of cash flow. However, when you are on the receiving end of that, waiting for your money, that is poor consolation!

Does your business receive 100% of the invoice value when you sell your invoices either individually, or bundled in a larger amount of invoices? The answer is 'no' – You generally receive on the same day anywhere form 75-90% of the invoice value. The balance is held back as a hold back or buffer, and paid to your firm immediately on final receipt of payment from your customer. At that point factoring would be 'free ', but it isn't, there is a further deduction for the commission or financing cost by your factor firm. That cost is one of the greatest issues facing Canadian business owners, because it is anywhere in range from 9%/annum to 2-3% / month.

The costs associated with factoring in Canada have to be viewed in the context that although they are higher than traditional bank financing that point becomes moot because your firm probably cannot qualify at this point for a true Canadian chartered bank operating facility. So factoring simply allows you to grow your firm when you can't obtain sufficient financing otherwise.

So now we have understood what factoring is, and why it has become a tool within the Canadian business financing tool kit. That's the easy part. The challenge for Canadian business then becomes -

- What type of firm is the best one for my company and industry

- How does this financing work on a daily basis

- Am I comfortable enough to let the factor firm notify my customers regarding invoice verification and payment

- Is there an alternative to involving my suppliers and customers into this financing process

We advise clients that the best factoring facility in Canada is one in which your firm can bill and collect its own receivables. That type of facility is called non notification and is as close to traditional financing mechanics as one can get.

So whats our bottom line summary – it's simply as follows. Factoring in Canada is only mis understood because business owners don't have access to solid unbiased information on how it works, what it costs, and how it benchmarks as an alternative to traditional financing. Certain factoring facilities in Canada exist that are very transparent to your firm and its customers. Factoring has higher costs, but those costs can grow your sales and profits considerably. Seek out the advice of a trusted, credible and experience advisor in this somewhat misunderstood area of Canadian business financing.

factoring invoice

Accounts Receivable Factoring is really a method of improve the amount of cash for the business. The companies that will be able to do this are the ones which are business to company. Should you don't do this, then you will not be able to have your invoices factored. Factoring is a way of discounting your invoices and selling them to investors or factoring businesses. Some variables will determine the factoring fee that you will need to pay for invoice factoring, but usually the fees will be low.

From Yahoo:

“The Royal Bank of Scotland Group plc has agreed the sale of RBS Factor SA to GE Capital,” the bank said in a statement. Factoring may be the process whereby money is advanced to businesses, as a proportion of revenue from invoices issued. The debt is reassigned to the factoring company, which enables them to collect it. RBS, which had sold already its German factoring division to GE Capital in March, did not disclose how much is going to be paid. Both deals are subject to regulatory approval and expected to complete by the third quarter of 2010. RBS added: “As part of the group's strategic plan, announced in February 2009, this company was placed in the non-core division while the group sought a new owner with a long term commitment to the factoring sector in France.”

The Factoring Buiness is certainly large. If there are enough margins to account for the factoring costs, then this can take your company to the next level. Increasing the bottom line and giving your business the growth that it is asking for is one with the best things that you can do for your organization. Certainly appear into getting your invoices factored so that you usually look at your options.

There are a number of business to business companies around which could use improvements on cashflow. Quite often, several businesses may have invoices dated anywhere from 30 to 90 days. During this period, the corporation has sold the product or service, and it's waiting to get paid back.

To recieve money immediately rather than waiting for the purchaser to pay, you may get your accounts receivables factored. Some individuals refer to it as invoice funding, and others may state that it is invoice discounting. Either way, it is actually the same result. You are going to be selling your invoices to a firm for a discount. This discount will often be anywhere between 1 to 6 percent. Instead of checking the credit rating of the business, the factoring or financing business are going to be checking the credit of your client. They'll also check out some other info just before cutting you a check. The total amount that they can offer you in advance will vary. A great example, they may provide you with 80% of the particular value of the invoice.

Once the client pays, they will pay out the rest of the money, minus their service fees. This will help lots of businesses out there. You'll be able to help enhance your working capital as well as help boost the growth of the business. Obviously, if your company doesn't have sufficient margins to support the service fees of getting your invoices financed, then this business financing model isn't going to work out. The best thing is the fact that this technique does help out lots of companies. small business factoring and RBS Financing are good information sources.

If you own a small company with very less receivable accounts, you will be in need of more cash in your hand but you do not have financing. Or you would have fall short of business fund out of reasons like less receivable volume or you are unable to quality for a bank loan or may be some other reason. Well, here is good news for you, there are companies to purchase your receivables and give you immediate cash.  All you need is a small factor which specializes in buying the invoices from small businesses. Small business factoring is the means of replenishing inventory and make more number of products to sell.

Small businesses have to face certain problems unlike large companies. Like clients take more than a month or two to pay for the invoices for small businesses. You have many things to be done like suppliers need to be paid, payroll need to be met and many more business formalities. Your growth will be hindered unless your small business does not have sufficient amount of capital reserves. The best solution you can get is to use small business factoring. Small business factoring is very easy to obtain and does not take much time to set up. It will also help you to meet all relevant business obligations.

Small business factoring is of great utility for the starters or the new businesses. It will provide you with a quick advance for your invoices and will also provide you with predictable cash flow which is a basic need for running any business. This way you need not wait to get paid and ofcourse this will help in better positioning for growth. Another advantage you will find when you using small factoring services is that these services will gradually grow when once they are being tied to your sales.

Small business factoring is extremely simple to use and it will integrate very easily to your business. The procedure to be followed in using the small business factoring is you have to deliver services/goods and generate an invoice, the factoring company will provide you with 75 to 90% of the gross value of invoice and when the client will pay the invoice, the reserves will be released. The pre requisite is that you should do the business only with the reliable companies which assure you to pay their invoices within three months.

Factoring refers to a financial transaction in which a business sells its invoices i.e. receivable accounts to the factor i.e. third party at some discount in exchange of the immediate money which are needed for financing the continued business.  It omits a month or a two which the customers take while paying the invoices and you get the working capital that you can effectively use to run your business. When you are in a business, several things are needed to be taken into account when you are getting approved for financial factoring services. These services are basically based on the average invoice size which could either be international or domestic. Also it is to note that factoring is a firm-based operation. It is very simple and is used in most of the businesses. An advantage in using this service is that you get a predictable cash flow; also it eliminates the uncertainty of being paid.

The two types of applications applied by financial factoring services companies are discount method and prime plus method. In prime plus method lower rates are produced. Although many companies use both these methods in order to determine the cost charged to a client. While looking for these services another point you should keep in mind is to keep a proper check since many companies offering these services have hidden fees which is not revealed initially. In prime plus method, there are two types of fees; first part of the fee called factoring fee is applied to every invoice and is only one-time while the other part is the interest charge on the financial advance provided by factoring services firm. The discount method is applied to invoices by factoring services firm’s is primarily based on percentage number of days.

The basic procedure involved in financial factoring services is as follows. While you deliver services or goods to your client, you issue an invoice. Now you need to sell your invoice to a company which offers factoring services which provides you with the first instalment. This amount is almost 70% to 90% of the gross value of invoice. It takes almost 24 hours to receive the advance amount. After one or two months, your customer pays you the invoice and the factoring company issues you the second instalment which comprises of the remaining funds.  The procedure of obtaining financial factoring services is much faster, easier and simpler as compared to entire procedure involved in applying conventional business loan.

The main requirement for applying financial factoring services is that your company should have reputable customers in your business since invoices are factoring company’s deposit.  With these services the financing line of your company grows with your sales and eventually your company progresses well. It is an easy procedure and can be set up within few days. This is ideal for established companies or start-ups. Also the factoring rates are higher than the traditional bank financing but the products of both are invariably different.