Home » Uncategorized » Accounts Receivable Factoring

Accounts Receivable Factoring

Recently an Importer in Ontario Canada after having exhausted its efforts in seeking a Business Loan from its local banks in Toronto, Ontario, Canada looked to a Commercial Finance Broker.

Their customers are all across Canada and they have plans to expand into the US market and due to growing orders they had been maxing out their Operating Line of Credit consistently. Their bank had then capped at $50,000 and would not increase it.

The terms with their suppliers in China are 30% with the order placement and the balance before the product leaves the warehouse. These are quite popular terms when dealing with China for goods.

The sales for the company are $1.5 million per year with typical days sales outstanding of 45 days, which is quite common, and in many industries considered quite good. The average amount in Accounts Receivable is $200,000 so you can see the $50,000 Line of Credit was of little use to them.

The company had to carry inventory since their customers expected orders to be shipped within 1 week of receipt and the fact the main supplier was in China meant they had to have sufficient stock to carry them for a months sales at any given time.

Against the owner’s wishes, they had to use personal loans to cover the cash shortage so that they could operate and carry the required inventory.

The cash flow crunch was cured by setting up a new Business Line of Credit for the company using Accounts Receivable Factoring.

The Importer now can take advances up to 85% of their outstanding Accounts Receivable to carry the needed inventory, pay off the bank that was not willing to help them and even pay off the personal loans they had taken. Imagine the relief.

Because the new Funding Line was based on outstanding sales, the Line increased as the sales increased. So as sales grew, so did the availability of funds.

Wade Henderson

Wade Henderson is a recognized Expert in Business Finance with over 16 years Experience in the Commercial Lending Field and a strong reputation for getting the deal done. Visit his Commercial Finance Website to put his experience to work for you.