Factors for Business Liquidity: IT’S
NOT THE F WORD
Alternative finance available for services to the construction industry The Final Frontier – to boldly go BIG! Canada is at the final frontier of alternative finance. Common European funding practices have been ignored or seen as lenders of last resort. Interest rates have been at an historic low for years, yet they are now rising again. Amongst other dynamics, we have seen the surge in Canadian construction fuelled by low interest rates, but we are now seeing changes in the traditional banks’ appetite for lending to each and every project. We now stand at the brink of a possible NAFTA apocalypse and a trade war with our biggest trading client. The USA accounts for approximately 76% of Canada’s exports and, although we are the top customer for 36 of the 50 US states we account for only 18% of the American export market. Domestic infrastructure projects won’t pick up the slack, and conventional liquidity sources will evaporate. So where do Canadian businesses go for finance when the banks simply won’t lend?Alternative sources based on longestablished European funding mechanisms have come to our shores. They are invoice factoring and asset-based lending. Factoring is a flexible funding solution for businesses
looking to improve cash flow by releasing working capital from outstanding invoices. If a business cannot or does not want to wait for 30 to 120 plus days to be paid, then funds can be advanced. Simply, a business sells its accounts receivable to a factoring company at a discount and receives the balance of funds immediately. The factoring company becomes a funder and will chase the accounts receivable, often on a nondisclosure basis so that customers never need to know that the accounts receivable have been sold. Not having to wait for up to 120 days for payments helps businesses continue to plan and grow by: • Giving immediate funding for expansion, enabling a business to provide goods and services to other businesses. • Letting management focus on the business and looking after customers, not collecting debts. • Alleviating a tight cash flow. Factoring offers a fast, flexible sourcing line with business sales. The more a business invoices, the more funds become available. A business can get access to cash in 24 hours and access to local decision makers who understand the requirements of the local business markets.
How Factoring Works:
Your company’s assets will help you generate the financing you need as we advance funds against:
32 | CONSTRUCTION ECONOMIST | www.ciqs.org | Fall 2018
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