Key point any time your clients pay over 30 days increases financing costs, and that includes higher financing costs or simply the higher cost of carrying receivables that are unpaid – Example… The carrying cost on $10,000 paid insurance in 66 days at 14% interest rate would be: $10,000 x .014 / 365 x 66 = $253.00
Improving collection procedures and invoicing clearly and properly
Use your receivable credit facility to reduce overall financing costs – this includes taking prompt pay discounts with your own suppliers, as well as insurance negotiating better prices with suppliers for goods you can pay for on delivery
Two critical points come to bear here:
Offering prompt pay discounts
About the Author:
Stan Prokop – founder of 7 Park Avenue Financial
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years – has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax read more credit financing.
Considering advance/down payments in some form
Receivable credit solutions don’t always come from the bank. Any business loans selling on credit, large or small soon feels somewhat ‘ tied up ‘. Those goods and services you’ve delivered require payment and the ability to finance trade receivables is critical. Let’s click dig in.
If a Canadian chartered bank or business credit union can’t supply the financing you blog need is there an alternative? You knew there was, and it’s the financing of your A/R through an independent commercial finance company. The problem? Which of their multiple solutions works for you… is one better than the other, and can the costs of click here such financing be managed properly or reduced?
The balance of 10% is in effect a ‘ holdback’ of sorts, and when your client pays you received that 10% back immediately, less a financing cost that is in the 1.25 – 2% range. So using a 10k invoice as an example your financing cost would be 125 .00 – 200.00 $. Naturally the costs are geared toward your client paying promptly in 30 days, which are very typical commercial trade receivable credit terms…
If you’re focused on achieving the best method to finance trade receivables seek out and speak to a trusted, credible and experienced Canadian business blog financing advisor with a track record of success in Receivable Credit solutions.
1. You can reduce financing costs by focusing harder than ever on your management of receivables – That includes:
Invoice clients the day you deliver your product or service
While the ‘ street terminology ‘ refers to this method of financing as ‘ FACTORING ‘ there are in reality a number of subsets of this type of commercial finance . Choosing the click here right one is your key to success,
Ensure you have a facility read more that doesnt require you to finance all your A/R all the time – if that’s the case you’re dealing with the wrong firm
Haven’t had someone fully or clearly explain how A/R Finance works? You’ve just received your clearance for a full explanation! –> Based on an up front financing security agreement being signed you can draw down typically up to 90% of the value of your total receivables that are under 90 days old . By the way the banks typically allow you to draw down only 75% of A/R, so one immediate observation is that you just managed to negotiate more liquidity / cash flow for your business,
Focus on the benefits of a CONFIDENTIAL RECEIVABLE FINANCING solution – This is our recommended solution for all our clients, as it allows you to bill and collect your sales without the ‘ notification’ that is required by traditional factoring services
2. Only draw down on your ‘ factoring’ facility when you need it