Purchase Order Financing Canada – A Great Canadian Alternative Financing Solution

Purchase Order financing, as well as inventory financing is two relatively new alternative financing solutions in the Canadian business environment. These two solutions provide additional flexibility when combined with traditional financing sources provided by your Canadian chartered bank or independent finance firm.

Traditional business financing in the context of working capital and cash flow revolves of course around the traditional current assets of receivable and inventory. Even if your firm is well financed and has a traditional bank line of operating credit you may have challenges in fulfilling large orders and contracts. This challenge becomes equally daunting when you don’t have traditional financing, so the ability to generate cash to fulfill larger orders and contracts becomes seemingly impossible.

Purchase order financing can provide you with the capital to fill those large orders and contracts, and, if properly put in place; can be very complimentary to your current financing.

As we have noted the concept of purchase order financing, aka ‘P.O. Financing ‘is a relatively speaking, new phenomenon in Canada.

So how does it work? Simply speaking financing is put in place to cover your material costs and direct labor costs, which are of course a significant part of your order or contract. We can safely say in many businesses that is 60-70% of the total order or contract based on most gross margins in any industry.

Your firm therefore has the working capital to finance your production.What’s left of course is essentially the profit on your P.O. or contract.

While it sounds relatively simply and easy we would point out some key critical issues that will allow the Canadian business owner and financial manager to determine if his or her firm qualifies for such financing. We can first of all say there has to be sufficient proof that your purchase order or contract is with a valid, credit worthy party. Naturally if there is any doubt that your order might not get paid, or that the customer is not credit worthy that precludes successful completion of any purchase order financing.

You should also not view the purchase order financing as a long term financing solution, it is not that. The funds are generally repaid immediately when you have completed your order / contract.

There are also some technical issues that need to be addressed if you have secured financing arrangements in place already. For example, if your firm has a bank line of credit they would be required to acknowledge the security that is taken in the Purchase order and resulting receivables that you create out of that order.

In our own experience Purchase order financing frankly works best when there is not a secured lender in place already, but that’s just our firm’s observation. Additionally on occasion certain other collateral or personal guarantees might be required. We would hasten to add that if you have already provided guarantees to the bank or other firms it would seem logical that you would provide them on the purchase order financing, which is somewhat of a riskier transaction for the lender.

Another very critical point is the whole issue of gross margin. The issues are that you need good gross margins to complete purchase order financing! A firm that is in low margin very commodity oriented business is not a strong candidate for P.O. Financing, because the combination of cost of goods, labor, overhead costs, and financing costs of the financing leave very little for the business owner. So categorically good gross margins make a much better P.O. Financing deal.

So why has this type of financing become popular – that’s fairly easy to understand. First of all the current Canadian business financing environment is challenging – therefore any alternative financing vehicle has a strong chance of being embraced and becoming more popular. After that it simply makes sense that p.o. financing can be very successful for your firm if it gives your company working capital you didn’t have,, it allows you to grow and profit at greater levels, and overall improves your competitive positioning within your industry.

We strongly recommend that if you consider Purchase order financing that you enlist the services of a credible experience business financing advisor who can maximize your cash flow and working capital with this unique innovative type of financing.

All You Have To Learn About Debtor Finance

All You Have To Learn About Debtor Finance
Debtor finance is a funding tool. It may allow you to get loans as fast as 24-48 hours. Generally, the loan amount ranges between 70% -.The financer releases the balance amount when your receivables are in fact realized.
Why Debtor financing
Companies are often done on credit and at times, the payment realization takes as long as 60-90 days. Such credit terms undermine the working capital and change the cash flow, finally affecting business operations. Debtor finance can come to the rescue in such situations, help you free up your working capital, and keep your expansion strategies in line. The good part about debtor finance is that real estate security is not wanted like in normal financing.
Debtor finance can broadly be classified into the following groups:
Private: For your visitors, the business finances usually are not notified in this particular case. They do not know about the deal happening between your business as well as the lending company and they make their payments that are outstanding for your company just. Revealed: in this particular case, a notification is sent to your customer clarifying you have lent out the debtor’s ledger as well as your customers make their outstanding payments to the financier.
Terms that are different
The normal time line is. Moreover, financers do not usually accept invoices, which can be more than 90 days old. In the event the customer will not pay within 90 days, the financer generally recourses such invoice, meaning the credit obligation again shifts back to your company after 90 days. At times non-recourse debtor finance services wherein the financer assumes a part or extra recourse periods is also available are offered (generally 120 days) for realization of the outstanding receivables. You might have to give collateral of particular unique assets and personal guarantee of the business managers, with your debtor’s ledger though no property security is required, to utilise such finance.
Who will get it?
Usually companies that sell goods or services to businesses tend to be eligible and are mainly those that use such a facility, although there are not any specific sectors per se. It is important nevertheless your business has a fiscally powerful customer base since debtor finance is dependent on and not more dependent on the creditworthiness of your company that of your customers. It is also important that you have a robust and long-term relationship together with your customers for one to be qualified for debtor finance.
There are many forms of trade finance options, which can assist you. Finance will help the customers to pay for the stocks. The lending company will certainly find a way to make profit against the old stock. Structure commerce finance is one of this system’s financing policies. It can help the business to create direct payment to the provider of the goods. There are several other types of trade finance. You can hunt on net if you would like to know more of the service then.

Bridge Financing

Bridge financing is a method of financing, used to maintain business credit liquidity while waiting for an anticipated incoming cash flow. Bridge financing is commonly used when the cash flow from a sale is expected after payment for the purchase. An example would be when you sell a house and won’t receive cash for the house for 90 days, but you have already purchased a new house that requires payment within the next 30 days. Bridge financing would cover the 60 day gap in between payment.

Bridge loans are usually more expensive than conventional financing to compensate for the high loan risk. They typically carry a higher interest rate, points and additional fees that are amortized over a shorter period. The lender may also require lower loan to value ratios and collateral that would not be used in conventional financing. Although, they are also arranged more quickly and have much less documentation than other types of loans. Bridge loan interest rates are usually 12-15%, terms ranging less than 12 months. The loan to value ratios generally stay less than 65% for commercial property and 80% for residential, based on the appraised values.

Bridge financing is also typically done by banks underwriting an offering of bonds. If the banks are unsuccessful in bonds to qualified buyers, they are normally required to buy the bonds from the issuing company themselves, on terms that would be much less favorable than if they had been able to act as an intermediary and just sold the bonds to other institutional buyers.

Another type of bridge financing is used by companies before do an initial public offering. It is used to obtain the cash needed to maintain current operations until the stock goes public. Many times the company will offer stock at a discounted rate as payment towards the loan. It is essentially a forwarded payment on the anticipation of future sales. There are 2 types of bridging finance. Closed bridging and Open Bridging. Closed bridge financing has an exit date associated with the funds. This ensures that the loan can be repaid on this date and the interest rates are lower than open bridging. Closed bridging is less risky for the lender because it usually has terms of less than 12 months.

Open bridging loans have much higher risk for the lender. There is no exact end date on the funding although there may be set payment dates in order for banks to recoup some of the funds along the way.

Awareness of Business Finance

Adam Tyler, the CEO of the National Association of Commercial Finance Brokers (NACFB), went to 10 Downing Street on 4 September 2013 to discuss financing and funding for SME’s and the need for better understanding of options that are available.
Mr Tyler explained that there is lack of knowledge and information regarding funding options that is available. Which he feels is one of the main factors holding back SME growth and the economy in general. There are a lot of financial requirements for all types of businesses but just don’t know where to go to get help. We need to enable and help businesses to gain access to commercial finance via an approved independent UK broker.
Mr Tyler was asked to attend a meeting for financial innovators to discuss how businesses in the UK would benefit from having more knowledge regarding commercial finance and how important it is for the industry to keep the UK at the forefront of financial innovation. He was also joined by other senior regulators including FCA chairman John Griffith-Jones senior representatives from HM Treasury and the Department for Business, Innovation & Skills.
Gaining access to finance for SMEs is a major factor for the economic recovery. This is an urgent problem and is getting out of control. There are too many businesses that are going to administration or being liquidated because of lack of knowledge of finance that is available to them. Business owners and finance directors don’t really understand the finance market and the alternative forms of finance to include invoice factoring, invoice discounting, asset finance or re-financing any machinery or equipment and vehicle leasing, these type of finance helps unlock cash into the business and gives the business a cash injection. Businesses can really benefit from these kind of finance but there needs to be more promoting regarding alternative finance for business owners thus making sure the economy strives and get it back to booming again. Commercial finance also helps business owners to expand their business further. At the meeting Mr Tyler expressed the importance of improving this understanding and to make sure that all businesses knows that there are other options that are available. NACFB have been creating The Small Business Finance Directory. It’s the only resource of its kind, so we need to be encouraging small businesses to use it.€
On 5 September Mr Tyler also met Patrick Magee of the Business Bank, a Government institution aimed at easing the credit crunch on SMEs by way of supporting and developing of diverse debt and equity finance markets for businesses, promoting competition and increased supply through new commercial finance providers and brokers.