Getting business financing has always been difficult, especially for small companies. Most lending institutions require substantial assets, from both companies and their owners, to be used as collateral. Although collateral is not the only requirement, it’s the hardest requirement to meet.
Since most business owners have invested all their money into their companies, their business is their biggest asset. From a lending institution perspective, however, a bank requires enough collateral to cover the value of the business loan in case it defaults. This requirement puts business loans out of the reach of most owners, leaving them at a serious disadvantage.
Are slow-paying clients a problem?
Most small and mid-sized companies seek business financing because they have cash flow problems, not because they need to buy equipment or real estate. And, in most cases, those cash flow problems originate from the fact that most commercial customers demand 30- to 60-day payment terms.
Business owners have little choice but to offer those terms if they want to make the sale – even if they actually can’t afford to wait that long for payment. And that is where the problems start. The business owner offers terms even though he can’t afford to wait and eventually finds himself unable to pay his own expenses. Before long, the business has serious cash flow problems.
Finance your invoices
The good news is that you can solve this problem relatively easily – without using a business loan. Instead, you can factor your receivables. A factoring company can finance your invoices from creditworthy customers. This solution gives your company immediate funds that can be used to pay important expenses. It also provides more predictable revenues. The transaction settles once your customers pay the invoice in full on their regular schedule. Note that your customers do not need to pay any sooner.
Advantages of factoring
One important benefit of working with factors in Canada is that their plans are flexible and can grow with your business. The size of your line can increase, with relative ease, to adapt to growing sales. Consequently, your company will always have the cash flow support to tackle bigger projects. This advantage makes accounts receivable financing an ideal solution for companies that have few assets (or collateral) and can’t qualify for a conventional business loan.
One advantage of factoring invoices is that getting the facility is comparatively easy. The most important collateral requirement is that your company work with creditworthy customers because the invoice that you are financing is the main collateral backing the transaction. Aside from that, your business needs to be well managed and your invoices need to be free of encumbrances.
Speed and costs
Most factoring lines can be set up in five to ten business days from the initial application, while subsequent transactions can be funded in a day or two – making factoring an ideal option for small companies that need quick funding to overcome cash flow problems.
The facilities are often priced as a percentage of the invoice. Most facilities cost between 1.5% and 3.5% per 30 days.
Get a quote
Are you looking for a factoring quote? We offer competitively priced factoring plans. For information, get an online quote or call (877) 300 3258.