Canadian Accounts Receivable Finance. Avoid the ‘Fat Smoker‘ Crisis Via Confidential Invoice Factoring

We're the first to admit we're always on the lookout for a solid business analogy. Enter the 'fat smoker' crisis as it relates to accounts receivable finance and confidential invoice factoring in Canada.

A U.S. publication entitled "Strategy & The Fat Smoker" talks about how either in our personal or business lives, we wait until we are in crisis mode before taking action. So why do business people, especially business owners or those in charge of finances, wait until that critical time when it comes to addressing cash flow challenges?

We know we will never really know why, but we can offer some solid preemptive strategies around monetizing your A/R into real world cash flow, the moment you generate that sale and invoice.

It's the build up of accounts receivable and inventories that in fact cause that crisis. It might come from strong sales growth - not the worst problem in the world to have in business, right? However, when a cash flow crisis comes from a slowdown in sales, that's often a different story .

The very quick way to address the buildup of A/R as it relates to accounts receivable finance is to do a very simple calculation, that being your day's sales outstanding. Let's use a quick example, and in our example we'll focus on a quarterly number. (You can use any time frame you wish). So we'll take our accounts receivable level in total dollars at the end of a quarter and we'll multiply that by 90 days, and then we will divide that number by your sales for those 90 days. Voila! You now have your DSO or days sales outstanding.

Now what? You have to benchmark that number on your selling terms and also measure it against your days payable to suppliers and other lenders. Simply speaking, if your terms to clients are 30 days, but your DSO is 88 days, and your terms with suppliers are 30 days... well... we think you see the problem!

Many Canadian business owners and financial managers see the problem, but many in fact combine the challenge of making money and having money. Again, simply speaking, sales don't pay your suppliers, cash does!

So, if curing the "fat smoker," or our cash flow problem is the challenge, how can that be done? Invoice factoring, or its better cousin, confidential accounts receivable finance, is in many cases the solution. It is a solid cure for the financial side of your cash flow and financing challenges.

Many clients we meet are forced into A/R financing, either via losing their bank lender or being unable to meet criteria for any other traditional financing.

Invoice financing monetizes your A/R into instant cash flow. That heavy investment of A/R on the left hand side of your balance sheet now shows cash on hand. When you qualify for confidential invoice factoring, you have raised the success bar even higher, you are in a position to bill, and collect your own invoices outside the regular process of invoice factoring.

Be proactive, and don't be thrown into the fixing the "fat smoker" crisis of cash flow shortages. Understand your DSO and what is often the the largest asset on your balance sheet.