Clarity and quality of information surely count when Canadian business owners and financial mangers consider business finance alternatives. We’ve said in the past, and still feel it’s true that no other form of finance in Canada is as misunderstood or potentially confusing as business receivable finance. So does this method of cash flow financing have to be confusing? We don’t think so, so let’s recap 5 often asked client questions with a goal of clarity for you, the Canadian business owner.
Question 1 revolves around the amount of funds you can expect to obtain in Canada. Typical advance rates for most facilities revolve around the 90% mark if you are dealing with the right party. The balance, i.e. the remaining 10% of your receivables is a hold back that is remitted to you immediately after your client pays. Another key question is facility size, and the good news here is that your facility grows as your sales grow. In general there are no credit limits per se, unlike bank facilities, which clearly have a cap .
Question 2 revolves around the process, i.e. the length of time it takes to set up a facility. We generally advise that it takes approx 2 weeks to set up a proper facility – that is a general guideline. You will know, by the way, very early on in the process if you are approved. After that it’s simply a question of documentation.
Question 3 is the proverbial hot point. Fees and costs. Various factors come into play here, the credit quality of your firm in general (it does not have to be as solid as you think), the size of your facility, the nature of your industry, etc. On balance a solid business receivable finance fee in Canada is 2-3% if you’re billing and collecting on a 30 day term.
Question # 4 revolves around types of receivables that can be financed, The key point here is that only ‘ business’, i.e. B2B a/r can be financed in Canada, so those companies with a consumer a/r base cannot take advantage of cash flow financing .
Question # 5 revolves around the age of receivables that can be financed. As a pretty general rule only A/R that is under 90 days in age can be financed via this method of Canadian business financing. One can safely assume of course that if you haven’t collected your accounts by that time there is an element of uncollectibility or bad debt in your A/R portfolio.
There you have it. Confusion gone away? We hope so. When considering working capital finance via business receivable financing ensure you’ve got the right information at hand to make an informed decision.