The Secret of Commercial AR Factoring and an Accounts Receivable Financing Loan in Canada

Updated: March 28, 2011

You know the drill already. Your client base and investment in accounts receivable is taking up a huge part of your working capital. Sales are growing, or you have some major new contracts and business, forcing your working capital needs to go up.

The strategy. It's of course what thousands of business in Canada are starting to consider everyday - factoring. (Also called commercial invoice discounting). If you were going to implement this strategy in the manner that your competitors currently are then you would sell your receivables as you generate them, obtaining immediate cash flow to generate more sales, more profit, and of course cover all those operating costs you need to run your business on a daily basis.

But wait a minute. As commercial AR factoring and AR financing stands now in Canada, utilizing the U.S. and European model, your clients must be notified that you have sold that receivable to the finance firm.

Is there a way to avoid that somewhat 'sticky' process and embrace the theme of our shared information here, which is 'minding your own business'? There is. The secret we are sharing is the availability of 'CID' which stands for confidential invoice discounting. This is clearly the accounts receivable financing of preference for Canadian business.

Let's examine what just happened as you have implemented this program. You have a bankable, liquid asset, your receivable portfolio. You now have the ability to in effect monetize that investment into working capital and cash flow today.

The costs of factoring are always a concern or subject of discussion when we talk to clients. The cost is in the 1-3% range per month. However companies such as yours need to understand that you can often cut those costs in half by effectively using your new cash to generate immediate sales an profits, take advantage of supplier discounts, and purchase more effectively and 'smarter' from valued key suppliers.

So how does our 'secret', i.e. confidential invoice discounting (factoring) work? It could not be any simpler. You bill and collect your own invoices, still receiving funds for them as you generate them. CID rates are the same as 'regular' commercial AR factoring, yet you are now in control of the process. And remember, important for you to understand this whole process is not a 'loan' as we mentioned, you are just monetizing assets and turning them into working capital as you need them.

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