Every Canadian business owner and financial manger wants to know that their firm has financial health in the short term. Your company's ability to access working capital funding means only one simply thing – you have the ability to pay off your short term liabilities such as accounts payable, taxes, source discounts, etc.
So do you in fact need a better type or working capital facility today, and, if so, what are your options. We can not cure the patient unless we can confirm he is sick … so how in fact do you determine if that working capital need exists. It could not be simpler. Go to your balance sheet, add up cash, receivables and inventory, and if they in total do not cover your accounts payable, guess what … the patient has a problem.
Two points worth mentioning, we fully realize most successful business managers and owners know intuitively that they have a challenge in the area of cash flow. It's simply recognizing that on a day to day basis more and more time is devoted to working capital management – ie collections, invoicing, juggling payables, etc.
There are very specific cash flow solutions for your working capital funding requirements. But believe it or not many of them can actually be fixed internally. You ability to negotiate better terms with your suppliers is a critical cash flow factor. More importantly many business owners do not focus on turnover and quality of your current assets such as receivables and inventory.
By effectively measuring and monitoring your turnover in receivables and inventory can significantly improve cash flow. Technically we're talking about reducing day's sales outstanding and calculating inventory turnover. Your goal is to reduce the amount of time it takes for a dollar to flow through your company.
So we have identified the problem, and the measurement issues around that problem, let's focus on solutions.
In a perfect world, and we know its not, your Canadian chartered bank would financing all your receivables and inventory on an ongoing basis, and, when you need it offer up a bulge type facility to take you through a working capital rough patch. That type of working capital facility is generally referred to as a business operating line of credit.
As we said, it's not a perfect world apparently! … And thousands of firms, sometimes yours, do not have access to this type of facility. So the Canadian marketplace offers up a number of solutions, for medium sized and larger firms the alternative is an asset based on line of credit that comes without the restrictions of a bank facility (ratios, covenants, outside collateral, etc) but in fact provide you with more working capital than a bank could. For smaller firms a working capital facility term loan is available through the government related bank in Canada. For smaller and medium sized firm's receivable financing facilities, know as factoring, can turn your receivables into a constant ATM machine, albeit at a higher cost.
So whats our bottom line. Simply the right working capital facility will put life back into the patient, your company! Knowing what facility works best, what your options are, etc is really the only challenge, Speak to a trusted, reliable and experienced Canadian business financing advisor to guide you through to the right cash flow solution.