By: Jonathan Brindley,CA
Principal
Liquid Capital
As an entrepreneur ensuring you have access to sufficient capital is a constant and ongoing struggle. Banks don’t seem to have any money to lend right now — or at least none they want to — raising equity either privately or in the markets is not a great value proposition for many companies with investors skeptical about, well, everything. Also capital costs are high and dilution and intrusion in management can be excessive.
A major bank recently commissioned a survey of 1,004 companies nationwide with annual revenue of $10 million or less that showed slightly less than a third of those surveyed said their bank provides everything they need when it comes to financing and other business services.
Yet business needs to go on. Companies still need to buy goods, meet payroll, cover seasonal adjustments and even seize market opportunities. So what are they to do?
Many small to mid-size business owners are turning to factoring, an alternative to bank lending that provides businesses with capital when needed on a flexible formula basis that is proportional to sales. The factoring “line” grows as the sales to credit worthy customers increase giving clients an opportunity to capitalize on market opportunities.
Any company or business entity that offers credit to corporate or government accounts can benefit from factoring either all their receivables or just a few select accounts.
Following are some of the most frequently asked questions about factoring showing how business owners can benefit:
Q: What is factoring?
A: Factoring is the purchase of corporate accounts receivable. It’s generally used when a company has market opportunities requiring greater capital resources then they posses to properly exploit the opportunities. Factoring gives that company access to capital through flexible and cost effective means.
Q: How does factoring work?
A: The factor purchases a business’s accounts receivable and gives them a large percentage of the total creditworthy accounts receivable up front and the remainder when they are collected. The factor handles all the credit checks, processing, reporting and collects the accounts receivable so the client is able to concentrate on growing their business.
Q: How does factoring differ from other types of financing?
A: Factoring differs from traditional bank loans because the credit decision is strictly based on receivables rather than other criteria like how long the company has been in business or balance sheet and working capital ratios and personal credit scores which are key considerations for most banks. Factoring differs from equity financing in that factors don’t take equity in the company, do not sit on the board or charge management fees. Since contracts are short term, the client could elect to stop factoring whenever they choose.
Q: Who can benefit the most from factoring?
A: Generally, any business-to-business company with good margins that has the ability to increase their sales but are held back because of a lack of capital can benefit from factoring. The industries that tend to use factors now are diverse and without factoring, they wouldn’t be able to expand.
Q: What are some common misconceptions about factoring?
A: The biggest misconception is that people believe factors are a lender of last resort, but that’s not true, factoring is designed to support growth opportunities. In addition to providing financing, the factor will do credit checking, receivables accounting and reporting, and all the collection work, thus saving the company the salary of employees hired to handle these same tasks and all the ancillary expenses. As well, most employees tasked with these duties are not trained credit or collection professionals, which exposes companies that want to offer payment terms to customers to increased risk. Trained employees are expensive and hard to find . Using a factor dramatically reduces these risks. Most clients are motivated to contact a factor for the money, but they soon realize the services and flexibility are equally as important.
Q: Do you see factoring becoming the norm if these economic conditions continue? For what reasons? A: With banks becoming more stringent and less dependable, businesses can’t get the financing they need. In Europe and the U.S. , factoring is more established and its volume has increased substantially. Given its increasing popularity in other markets, I think it’s only a matter of time before it enjoys a similar level of acceptance in Canada.
Liquid Capital is an established international network of finance professionals with over 65 independent local offices throughout North America, who specialize in providing clients with Accounts Receivable financing. For more information, visit www.liquidcapitaladvancecorp.com
A Glimpse into the Success of the 2012 Toronto Entrepreneurs Conference
The Toronto Entrepreneurs Conference has grown substantially since the inaugural event last year, more than doubling the amount of participating exhibitors, growing the speakers list, and attracting more than 1,000 attendees.
We were delighted to have Mark Breslin, founder of Yuk Yuk’s join us as keynote speaker. Mark gave us insight into the unforgiving world of stand-up comedy and how he has built a thriving career and a world class reputation as one of the most important figures in Canadian comedy. The Conference also included outstanding presentations by Kurt Rosentreter, Lisa Kember, Marc Belaiche and Peter Weinstein who spoke of their unique experiences as entrepreneurs.
The Toronto Entrepreneurs Conference was designed to provide entrepreneurs, whether budding or experienced, with the opportunity to expand their professional network, hear from experienced and successful entrepreneurs on tips and opportunities and learn what it takes to become successful and stay thriving.
A special thank you to our 2012 exhibitors!
The 2012 Toronto Entrepreneurs Conference would not have been the success it was without the participation and support of our exhibitors. Thank you! For a complete list of the 2012 exhibitors, please click here: http://torontoentrepreneursconnected.blogspot.ca/2012/06/blog-post.html
Here’s what some of our attendees are saying:
“Overall it was well organized, in fact very well organized. I have been to conferences in various countries and it didn't fail to impress me.”
“Had glowing comments from the exhibitors I spoke with, especially in the Atrium. The place looked great and traffic was always moving through the halls.”
“The event was worth driving from Montreal. I particularly liked the exhibition booths where I got valuable information. The conferences were well prepared and useful. Also, it was fun. I do not know how much work you and your team put in it but it was a success. I hope to be able to come again in May 2013.”
Interested in exhibiting for our 2013 event? Please email info@TorontoEntrepreneurs.ca for more information!
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