Contract payment financing in Canada. Here’s a shocker for you (not!) Generating sales revenue does nought equal cash! And if you’re in the contracts finance business there’s an even longer lag than usual. Can this be addressed? Yes, in a number of manners, both internally at your firm, and externally through proper financing. Let’s dig in.
If you’re fortunate copious to be in an ‘ all cash ‘ traffic your investment requirement in accounts receivable is… Nil. Businesses selling on standard mercenary ascription provisions typically have 30 days terms, and receivables tend to be collected usually within 30-60 days. Businesses selling under contracts among clients find themselves in a unique position; they are required to allowance for materials, wages, and spare goods and services while waiting for payment under the terms of their longer contracts with clients.
If behoove contracts and contract financing is not put in place those businesses are challenged to create additional revenues, let alone maintain their commitments to suppliers, banks and commercial lenders.
Businesses that have proper contracts in stronghold with reputable clients are really in a better position than they control think. The undependable is to ensure that your lender understands the nature of your payment structure and that your expenditure rights are correctly assigned in order that they can be financed.
Monetizing your contracts, if done successfully allows you to finance contracts properly and invest in more projects. The key to proper financing concerning your contracts is not necessarily your balance sheet – rather it’s your credibility and expertise to complete your contracts, bill them properly,
Typical reasons for contract/PO financing are as follows:
Your traditional lender/bank is unable to accommodate financing of this type
Suppliers insist on some level of pre payment
Large contracts are being turned down by your flock due simply to lack of financing
Additional debt and equity financing are either not available or not desirable
Your firm’s invoices to your clients can be monetized directly into coin in one of dichotomous ways. They can subsist cash flowed with immediate funding via an asset based line of credit, or alternatively, providers can be paid directly via a PO FINANCE/SUPPLY CHAIN facility.
The benefits of a properly structured CONTRACT FINANCE facility are key. They include:
Vendor and Supplier Satisfaction
Ability to take on significant revenue projects not previously considered
Pricing power via supplier discounts
Properly structured financing wont be prejudicial to the type of industry your firm is in. Unfortunately many firms find themselves external of favor when it comes to their search for traditional contract finance. That shouldn’t indiging the case if through properly. In some cases the easiest way to resolve contract funding is to completely have your client disclose that the work you have billed for has been performed/received. What could be easier than that?
By the way, in the technology industry many contracts jug also verbreken financed subalternate recurring revenue streams your fastened bills – that might be software comme il faut a service, long term service contracts, etc.
Bottom line, don’t let the inability to finance contracts obstruction your sales growth and financial progress. Seek and speak to a trusted, credible and experienced Canadian business financing advisor who vessel assist you with contract payment financing solutions.