Factoring and Reverse Factoring

Access to cash flow is a very important issue for business owners. Your first instinct as an entrepreneur is to obtain a line of credit to finance your receivables. However, the percentage of funding will be limited, and in a situation of significant growth, it becomes difficult to quickly access immediate liquidity and allow the required leverage. Wrongly, companies will use factoring when their situation becomes precarious. You should therefore consult your mortgage broker quickly so as not to put yourself in a critical situation.

Factoring financing allows you to use your accounts receivable as leverage to obtain more credit and increase your cash flow. There’s no maximum funding limit set, and as the volume of accounts increases, so does the funding. The cash flow thus generated improves the working capital of the company. It will be possible to finance all the accounts receivable, but also only a portion.

The Sought Benefits

• Improvement of your working capital
• Elimination of exchange rate and non-payment risks
• Elimination of collection and recovery of debts
• Increased sales without significant additional risk
• Positive impact on the financial performance indicators of your balance sheet
• Simplified negotiations with your Canadian or international buyers

Why should you use factoring?

• Obtain additional liquidity to support your growth
• Reduce the risk of concentration or dependence with certain buyers
• Benefit from the discounts offered by your suppliers
• Reduce credit risk for some buyers
• Offer longer terms of payment to your buyers
• Stand out from the competition without increasing your risk

General Characteristics

• Financing up to 100% of the invoice amount
• Off-balance sheet financing improves your liquidity and financial structure
• Possibility of financing customer accounts of more than 90 days
• Fixed-rate discount financing
• Financing without recourse against the seller
• Financing possibility for your buyers for up to 360 days

Reverse Factoring

A little less well-known, this is an account payable discount program. Financing your accounts payable allows you to use your accounts payable to obtain more credit. Your suppliers are paid by the bank as per your instructions.

The Sought Benefits

• Funding of up to 100% of the amount of invoices to be paid.
• Ability to use or negotiate discounts for payment from your suppliers.
• Possibility of obtaining longer terms of payment for your purchases.

Why Use Reverse Factoring?

• You cannot benefit from payment discounts from your suppliers due to a lack of liquidity.
• You have reached your credit limit with certain suppliers.
• You want to obtain more payment terms to free up your cash flow for other purposes.

Three Possible Options

Option 1 – Term note financing

This financing program is intended for companies wishing to finance Canadian or foreign accounts payable. Payment from your supplier can be made anywhere in the world within 24 to 48 hours.

Option 2 – Funding with Factors Chain International (FCI)

This option is suitable for companies who wish to finance their foreign accounts payable. The supplier is paid directly by an FCI member located in his country. The bank guarantees a 100% payment of the invoice to an FCI member located in the country of the supplier.

Option 3 – Standard financing from suppliers

This option allows you to fund your Canadian accounts payable. Possibility of transferring the cost of the program to the suppliers. The supplier has the option of being paid immediately by the bank for a certain fee.

Do not hesitate to consult your mortgage broker for all the details and stop hampering your growth due to lack of liquidity.