Paying Too Much For Canadian Accounts Receivables Factoring ? A/R Financing Pricing Revealed !

Updated: June 06, 2011

Congratulations, as you've made the savvy decision to avoid taking on more debt, or necessitate the need to bring in extra equity or even, worst case, dilute your current ownership by having to bring in a partner or investor, etc.

When clients ask us the most basic questions, such as ' why should we consider business accounts receivables factoring financing we use a simple example that simply illustrates what the potential here is for this type of financing , ( Once you have rationalized the cost ). That example is that you have in effect turned your company into an automatic teller machine, creating unlimited working capital as your sales grow... Even the big boys wrestle with that one, so congrats!

And speaking of those big boys, clients are always surprised to hear that some of the largest corporations in Canada utilize this method of financing.

So back to our core subject of course, which is both understanding, controlling, and feeling you have been able to choose the most effective pricing for A/R financing.

Several issues come into play. In general when you utilize this type of financing your own firms general credit worthiness does not come into play, because it is your assets - i.e. the receivables! that are being financed. So our first point is simply size, in that you can do a factoring (aka invoice discounting facility) for 15k a month, or 15 Million a month. However, speaking in general terms small and medium sized firms in Canada have been paying between 1-3% on a 30 day basis for financing receivables in a ' traditional' type of facility. If you are paying anything more than that you in general do not have a competitive offer - so try and change that!

What do we mean by traditional? Simply that Canada was for many years slow to catch on to A/R financing strategies, so the industry is somewhat dominated by U.S. and British firms, even on our own soil. Their facilities are structured similarly all over the world, which is one of the reasons we have never favored them as ' optimal ' for Canadian firms. Our own preference on financing A/R is a system known as C I D, confidential invoice discounting, which allows you to bill and collect our own receivables, without any notification to your customers or your suppliers.

And when it comes to pricing mis information exists out there that this type of facility (C I D) costs more. It does not. We repeat, it does not.

Is it possible for the Canadian business owner and financial manager to wrestle down the basics of how accounts receivable factoring business financing is priced? It sure is. You only have to know three things, the advance rate, the actual discount or purchase fee, and the time in which the invoice will be paid.

We hasten to point out that you in effect have control over one of the three critical factors that affects A/R financing pricing. That's the time to collect, since the less time the invoice is outstanding means your pricing just got better. Simple as that.

Percentage advance is a different story, its one of the factors you can't control, and it's simply the amount the finance firm advances you on each invoice. In general 90% is a typical advance rate, meaning simply that you get on day one 90% of the invoice amount as instant cash flow - the other 10% is remitted to you when your customer pays.

Other ways you can both understand and affect pricing are by watching miscellaneous items that can add up. They include nominal amounts such as set up costs, wire transfer costs, admin charges, etc. Make sure to calculate them in your overall pricing, and negotiate hard, when you can to reduce these charges.

Featured Research
  • 10 Reasons to Invest in Video Conferencing

    Have you been on the fence about implementing a video conferencing solution for your business? Not quite sure if your employees will utilize it or are concerned about the costs being too high? The modern workforce is adapting and evolving with more and more employees working remotely, it is essential that they have the tools to be able to communicate effectively. more

  • Checklist for Setting Up an In-House Contact Center

    As customer service continues to become the most important competitor differentiator, can you honestly state that your business ranks among the best in your industry? 93% of organizations expect that contact volume will either remain constant or increase over the next two years. It is absolutely essential that you have a contact center that has been set up for success. more

  • 2017 Business Intelligence Trends

    It's long been thought that business intelligence (BI) could only be utilized by highly trained analysts and was therefore unattainable for most businesses. However, advancements in BI have made it so that everyone can utilize BI solutions to help shape business decisions and drive companies bottom lines. more

  • Your Phone System and Your Bottom Line

    Businesses have been using phones to drive increases to their bottom lines for almost a century now. Telephony, much like the rest of the business world, has seen drastic changes with the increase in technological advancement. Voice Over Internet Protocol (VoIP), has enabled companies to connect with consumers at levels that have been seen as unheard of before. And trust us when we say this, it is doing wonders for the bottom line. more

  • How to Scale a Contact Center in 2017

    Are you on the fence about scaling your contact center and not sure how or whether or not now is the time? Studies have shown that 93% of executives expect that contact volume will remain constant or increase within the next two years. This means that now more than ever is the time to begin scaling and we are here to help. more