It would be great to hear our clients say they have no issues in working capital finance and challenges, and that solving cash flow problems is the least of their worries. Unfortunately we haven’t met one customer that seems to be comfortable sharing that with us.
Let’s look at the root of some of those working capital challenges; what are the problems, what caused the problems and then talk about why you are probably reading this… you want working capital solutions.
It’s of course great to have sales – and sales and profits are even better. In general when you have those you have the essence of a healthy business. But those are in effect what we could call paper transactions and it always comes back to 100 year old clichés such as ‘ cash is king ‘ and ‘the sale isn’t made until you’re paid ‘.
That cash is required for all those mundane things, paying suppliers, paying employees, and meeting your obligations on loans and leases.
Your challenge is typical, how you do create a flow of cash in the long term, as well as addressing short term bulges to ensure you have liquidity.
Naturally when you have a good handle on cash flow everyone views you in a positive light, most importantly your suppliers and lenders.
The solutions to cash flow challenges often come out of inability to plan or address the right type of cash flow solution. You run the risk of liquidity problems when you current assets aren’t able to be converted in a timely manner into cash – those assets are typically receivables and inventory.
There isn’t a day when we don’t run into a textbook type of working capital finance challenge – it’s as simple as requiring product to satisfy regular or new large orders, generating invoicing, and then waiting 30, 60 or 90 days for payment. That is the textbook challenge when we talk to clients asking us for assistance in solving cash flow problems.
So we have done a pretty good job of telling you what your problems and challenges are – let’s address some real world solutions.
At the core of working capital finance challenges are you inability to access business credit. We encourage all customers to seek Canadian chartered bank business credit when they are in a position to do so. Unfortunately many clients can’t meet business net worth, personal net worth, and liquidity ratios and covenants your bank might require. Also we strongly believe that inventory financing by banks in Canada is increasingly more difficult to achieve.
Don’t borrow – monetize. That’s the best advice and plan we set our with clients to solve cash flow problems. You could get a working capital cash flow term loan, but that just creates additional debt on your balance sheet. Instead, take those assets you already have on your books and monetize them – those assets are the previously mentioned inventory, A/R, and in some cases tax credits due your firm as well as unencumbered equipment.
Liquidity for those assets can be achieved by a receivable financing program, an asset based line of credit, or a short term bridge loan on an asset such as a tax credit or paid for fixed asset such as equipment. Many of these solutions are outside the chartered bank system in Canada and can be accessed by talking to a trusted, credible and experience Canadian business financing advisor.
Your ability to monetize your assets, keep suppliers paid and current and then having the ability to grow your business when you assess and consider monetizing assets into short term liquidity.