Corporate Asset Finance has the ability to be very complex today - the positive news being there are a number of options for the Canadian business owner / financial manager to choose from. That might be a lease company, a bridge loan provider, or even a Canadian chartered bank.
The owner/manager can then be forgiven for not truly grasping the benefits, and risks, of asset finance. Worse, more often than not available advantages and benefits are under utilized.One way to take control of the asset finance concept is to utilize the services of a financing expert. Truth be told it is a rare breed of business owner or manager that has the background in credit, law, finance, tax , and accounting that are all part of the asset finance equation.One way in which the asset finance question is often overlooked is simply the inability of the owner and manager to look at asset financing from a 'cradle to grave 'point of view .
So what are those starting to end points when it comes to corporate asset finance via your lease company or other alternative financial institution? First of all the borrower has to have a strong sense of the general marketplace that is probably one of the greatest areas of misinformation or confusion. We talk to countless clients who simply don't understand the lay of the land when it comes to asset financing namely who are the players in the asset arena they are playing in? We can't count the number or times we've seen a client who has previously spent a lot of time dealing with the wrong players and the wrong offerings.
To put it simply, they don't understand the lay of the land!After getting a strong handle on the overall market your firm has to have some sort of evaluation criteria. Those criteria involve rate, term, structure, useful economic life, etc. Documentation, tax and accounting issues, as boring or mundane as they might sometimes seem are critical to 'best practices 'in asset finance.
In entering a lease or asset finance transaction your company needs to know how this particular finance transaction can make or lose your company money. That might come from understanding applicable rate structures, or perhaps knowing your firm might have the bargaining power to issue a tender to solicit asset finance bids.
The big boys and government does it - can you? Sometimes you can .Not always, but sometimes!Key issues in accounting and finance play a key role in asset finance. They might include depreciation policies, or simply your choice to enter into an operating off balance sheet type transaction. Part of the business of asset finance is of course knowing the long term economic value of the assets you're financing.
Your overall financing strategy brightens significantly when you're keenly aware of asset resale values and obsolescence issues.Want to get a solid handle on the pros and cons of corporate asset finance in Canada, dealing with a lease company or commercial finance firm.
If you don't know it all (who does? ) seek out and speak to a trusted, credible and experienced Canadian business asset financing advisor who can assist you in getting un-overwhelmed!
Showing posts with label Company. Show all posts
Showing posts with label Company. Show all posts
Saturday, July 28, 2012
Saturday, April 21, 2012
Raising Company Finance
Due to the credit crunch and many banks' unwillingness to lend, businesses are struggling to raise money to finance their activities using traditional sources such as an overdraft, credit card or loan facilities. For this reason, many companies are turning to sources of income such as factoring and invoice discounting.
Factoring and invoice discounting allow a company to improve its cash flow by borrowing against legitimate invoices that have been raised. A company which is taking advantage of this type of facility will normally be able to gain access to 80% of the value of the invoice raised immediately without having to wait for the normal payment period.
Invoice Factoring The process of invoice factoring generally involves a bank (normally known as the Factoring company) taking over a company's invoicing and credit control function. When invoices are raised, the factoring company immediately makes credit available to the company. The name of the factoring company is stated on the invoice and the payment of the invoice is made directly to the factoring company. The factoring
company will often manage payment collection and credit control.
CHOCCs Factoring CHOCCs stands for Client Handles Own Credit Control. This type of factoring is similar to full factoring however in this situation, the company still retains responsibility for collecting payment of its invoices. The advantage of this for the company is that it will normally be a cheaper service and more control is maintained over the payment relationship with the company's clients.
Invoice Discounting invoice discounting is similar to factoring in the sense that a factoring company will make credit available to the business as soon as an invoice is issued. However, the service is discreet. The factoring company's name does not appear on the invoice and the debtors do not know of their
involvement. The company sends out its invoices in the normal way and collects debt in the normal way.
The different factoring facilities would be used depending on the nature of the business. For example, where it is important to ensure that the involvement of a factor is not disclosed, invoice discounting may be a more appropriate method. Where this does not matter or in fact where it is seen as an advantage to involve a third party to help in the collection of debts, then full factoring may be the correct solution.
Of course, for invoice discounting to be made available, the factoring company must have the confidence that the business it is lending to will be able to tightly manage its debt collection processes. For a full invoice factoring solution, up to 80% of the value of an invoice may be made available on the day it is raised. However, as invoice discounting is perceived as a greater risk to the factoring company as they have less control, smaller amounts may be made available using this solution.
It is important to understand that invoice factoring provides access to money based on business activity which is already happening. For factoring or discounting to work, the business must be already generating or imminently generating invoices. As such, it is an ideal way to improve the cash flow of the business which is currently operating. Having said that, however, invoice factoring or discounting can also be an ideal solution to help improve the cash flow position of a new business such as a Phoenix company. Here invoices will start to be raised almost immediately and so a factoring facility could be used.
Because Invoice factoring or discounting focus on cash flow improvement, they are not generally regarded as appropriate methods of raising a lump sum for a specific business project. If this is your requirement and a bank loan is not available, then a more suitable option may be asset refinance. Invoice financing and discounting are also not without cost. Normally both options involve a service charge (which may be between 0.5% and 1% of the sum lent) and a rate of interest. However, where a business is looking to improve cash flow and more tradition methods of achieving this such as bank overdrafts and credit cards are being withdrawn, invoice financing and discounting is often an extremely useful solution.
Factoring and invoice discounting allow a company to improve its cash flow by borrowing against legitimate invoices that have been raised. A company which is taking advantage of this type of facility will normally be able to gain access to 80% of the value of the invoice raised immediately without having to wait for the normal payment period.
Invoice Factoring The process of invoice factoring generally involves a bank (normally known as the Factoring company) taking over a company's invoicing and credit control function. When invoices are raised, the factoring company immediately makes credit available to the company. The name of the factoring company is stated on the invoice and the payment of the invoice is made directly to the factoring company. The factoring
company will often manage payment collection and credit control.
CHOCCs Factoring CHOCCs stands for Client Handles Own Credit Control. This type of factoring is similar to full factoring however in this situation, the company still retains responsibility for collecting payment of its invoices. The advantage of this for the company is that it will normally be a cheaper service and more control is maintained over the payment relationship with the company's clients.
Invoice Discounting invoice discounting is similar to factoring in the sense that a factoring company will make credit available to the business as soon as an invoice is issued. However, the service is discreet. The factoring company's name does not appear on the invoice and the debtors do not know of their
involvement. The company sends out its invoices in the normal way and collects debt in the normal way.
The different factoring facilities would be used depending on the nature of the business. For example, where it is important to ensure that the involvement of a factor is not disclosed, invoice discounting may be a more appropriate method. Where this does not matter or in fact where it is seen as an advantage to involve a third party to help in the collection of debts, then full factoring may be the correct solution.
Of course, for invoice discounting to be made available, the factoring company must have the confidence that the business it is lending to will be able to tightly manage its debt collection processes. For a full invoice factoring solution, up to 80% of the value of an invoice may be made available on the day it is raised. However, as invoice discounting is perceived as a greater risk to the factoring company as they have less control, smaller amounts may be made available using this solution.
It is important to understand that invoice factoring provides access to money based on business activity which is already happening. For factoring or discounting to work, the business must be already generating or imminently generating invoices. As such, it is an ideal way to improve the cash flow of the business which is currently operating. Having said that, however, invoice factoring or discounting can also be an ideal solution to help improve the cash flow position of a new business such as a Phoenix company. Here invoices will start to be raised almost immediately and so a factoring facility could be used.
Because Invoice factoring or discounting focus on cash flow improvement, they are not generally regarded as appropriate methods of raising a lump sum for a specific business project. If this is your requirement and a bank loan is not available, then a more suitable option may be asset refinance. Invoice financing and discounting are also not without cost. Normally both options involve a service charge (which may be between 0.5% and 1% of the sum lent) and a rate of interest. However, where a business is looking to improve cash flow and more tradition methods of achieving this such as bank overdrafts and credit cards are being withdrawn, invoice financing and discounting is often an extremely useful solution.
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