The economy of Quebec has undergone a substantial transformation in the past decade, with an expansion in the knowledge economy, research and development, aerospace and transportation industries. This vibrant economy has lead to business creation – as many entrepreneurs decided to leverage their skills and try to grow their own companies. However, companies need financing to grow. And for many companies in Quebec, finding financing has been a challenge and a source of problems.
The most common problem
The most common financial problem for companies is running out of money because cash flow is not well managed. This often happens to businesses that sell products and services to other companies. As part of the sale, they often have to extend payment terms. This gives clients the option to pay an invoice in up to 8 weeks. Many small companies can’t wait that long for a payment and need money sooner.
As a small business, you have to offer terms because that is how business is done. If you don’t offer them, you risk losing the client. This puts you – the entrepreneur – in a serious bind. You have to chose between growing your company and running into financial problems.
Few business owners account for this when running their companies, which means that these problems may catch them by surprise. What’s worse. These problems often surface when the company is doing very well and growing quickly.
Will a bank help?
One simple solution is to use a line of credit to cover the cash flow gap. You can easily use it to pay for expenses and then replenish the line once your clients pay. However, getting a line of credit is very difficult. Companies that are near financial centers, like Montreal, may have better luck getting financing simple because of their location. But the fact is that Canadian lending institutions are conservative in nature. They have very strict underwriting criteria and will only provide funding to companies that have assets that can be used as collateral. Also, your company will need to have good financial statements and show a track record of growth. Because of this, getting conventional business financing in Quebec can be difficult, especially for small companies.
Solve the problem – accelerate cash flow
One simple way to solve this problem does not require bank financing. You can simply accelerate your cash flow by factoring your receivables. In Quebec, factoring has been gaining popularity as a way to solve the cash flow problems created by slow paying customers. It works by partnering with a finance company, who funds your open receivables to credit worthy commercial clients. This provides you with the working capital to operate your company without having to worry about extending terms to customers.
The transaction is simple
The actual transaction is relatively simple. The factoring company finances your invoice in two installments, called the advance and the rebate. The advance is about 80% of your invoice and is wired as soon as the work (or product) that you are invoicing for has been delivered and accepted by your client. The remaining 20% is rebated once your client pays in full on their regular schedule. The finance fee is often subtracted from the rebate.
How will this benefit me?
This type of funding is easier to get than most conventional solutions. That, in itself, is an advantage. However, there are two important benefits to this program. The first one is that it will stabilize your working capital, and provide the cash flow you need to operate your company. The second one is that your company will be able to offer terms to clients – with confidence. You will no longer have to chose between growth and cash flow problems. It will enable you to focus on growing your business because you will now have a solid financial platform to support your company.