Here’s 5 Immediate Solutions for Working Capital Financing for Your Cash Flow Business Needs!

These days you probably would be happy with 1 solid working capital financing solution for your cash flow business needs.

We’ll beat that and give you 5! How is that for alternative solutions to your working capital and cash flow needs?

Funding of working capital continues to be a large challenge for Canadian businesses of all size – you want to grow your business which requires investment in and of it, and by the way those suppliers and employees want to be paid on time also.

Lets examine some solid real world solutions to your cash flow needs – in some cases all of them could work for you, but in general even a couple of these solutions would ‘ fix ‘ the current problems you face on a day to day basis.

The most liquid asset any business always has, (next to cash) is your receivables. Working capital financing is best generated by the collection, or financing of your receivables. This can be done via either faster collections, or selling your receivables as you generate them. This financing is called receivable discounting or factoring, and is becoming increasing popular everyday.

Did you ever think of the government of Canada as one of your best working capital financing partners? Our clients are amazed when we suggest that ‘ partner’ as a solution. But the specialized government program, technically called the BIL/CSBF loan program finances any equipment and leasehold improvements you need via a greatly subsidized loan program. We say subsidized, because even if you are a start up rates are great, guarantees are limited, and loan max amount is up to 350,000.00. Our clients who take advantage of this program consider it, bar none, the best financing in Canada for small and medium business, including start ups.

You’ve spent your working capital – would you like to get it back? Clients always ask what we mean by that. Any equipment you have already paid for can often be refinanced, the technical term is sale leaseback, and we find that either that strategy or a short term bridge loan with the equipment as security is exactly what our clients need to bridge the cash flow gap.

We spoke above about receivable financing – one of the best facilities for Canadian business is a combo working capital facility that finances, or ‘ margins ‘ both your A/R and your inventory. Since many firms previously couldn’t finance their inventory either elsewhere, or via banks, the combined liquidity of borrowing against your A/R and inventory is a true power punch! Typical this type of financing is known as an asset based lending facility, and makes most sense when the facility is at lease in the 250k range, and sky is the limit after that.

Many clients are totally unaware the Purchase orders financing is available in Canada. This is a strong potential cash flow saver, and generator, since your suppliers are paid for product when you order it, once you have received the P O. The P O lender takes the inventory and receivable as security, but in effect finances your whole sale. While it is an expensive form of financing if you have good gross margins and could otherwise not facilitate the sale of your large new orders and contracts it’s a perfect solution.

Working Capital Financing

All businesses have some sort of an operating cycle. This is essentially the time it takes from purchasing needed materials or supplies and converting them into a finished product that can be sold. The operating cycle further consists of selling those products and collecting payment for all that effort. Once products are sold and payments collected, the cycle is completed.

For retail businesses (including online businesses) the cycle starts with purchasing products for resale (inventory) then displaying those products on shelves or on web pages, closing the sale and collecting payment.

Even service businesses, while their operating cycle can be much shorter, still see a time lag between providing the service (to include any purchases of material or labor to complete the job) and collecting payments from customers.

It is because of this time lag that working capital financing comes into play.

All these businesses need some form of assets, be it inventory, materials, supplies, labor, etc. (usually termed: current assets) that can quickly flow through the operating cycle and be converted into cash (revenue). This is essentially what business is. Once payment (revenue) is received, the company can then use any operating cycle profits (gross margin) to cover overhead expenses like salaries, marketing, loan payments and interest, capital purchases, or any fixed general, administration or selling expenses.

The problem that arises for most businesses (especially small and growing businesses) is not having the cash on hand to purchase the needed materials to complete their operating cycle. Not only do some businesses not have the cash or capital to purchase needed materials they may also not be able to cover other variable costs related to the operating cycle like paying labor, landlords, utilities, etc.

In a perfect world, all businesses would have the necessary financial wherewithal to cover all expense while waiting for payment. But, the business world is not perfect. Most businesses have to wait anywhere from one day to years to complete their cycles and get paid by their customers (typical operating cycles usually last from a few weeks to a few months but depend on the industry and business).

But, in the mean time, while these businesses transform goods into finished products or services and wait to be paid by their customers (or wait to see if they can even sell the products or services they offer), their suppliers and vendors, landlords, utility companies, employees, IRS, bankers, etc. all want to be paid now and not wait for the business to receive payments; keep in mind that these businesses are also facing their own time lag in their operating cycles. Thus, for businesses that do not have the cash on hand to meet these expenses, they must turn to working capital financing or face going out of business.

Working capital, by definition, is the difference between current assets and current liabilities where current liabilities are used to finance current assets; and the conversion of those current assets into revenue is what is used to pay off those current liabilities.

There are many methods to working capital financing; here are a few of the most common:

Trade Credit: The fastest and most efficient way to finance materials or supply is via trade credit. How it works is simple. You purchase goods from your vendors or suppliers. They tell you that you can delay payment for those goods for 60 days. This 60 day period will give your business time to convert those goods, via your operating cycle, into revenue in which to repay the vendor or supplier. If you are not currently getting trade credit terms from your vendors – you might think about asking for them. If you are, you might look into getting them extended. The longer the payment delay terms, the better for your business as it has more time to convert those goods into revenue.

Business Lines of Credit (BLOC) are short term revolving credit lines (usually with a 12 month or less term) and are specifically designed for working capital needs. These credit lines allow businesses to purchase needed material, supplies, labor etc., convert those into some form of revenue over a very short period and pay back the borrowed funds as soon as possible. BLOCs are usually revolving lines meaning the business can pay them down from one operating cycles and draw on the line again for another operating cycle. Most BLOCs are set for 12 month periods as these lines are meant for short-term financing only and from a banker’s prospective should be paid to zero some time during each of the business’s operating cycles.

Business Cash Advances: These cash advances are not loans but advance against future sales. These advances are great methods of working capital financing as they allow businesses to receive capital up front and pay it back from future sales. Business cash advances are usually based on the total revenue of the business but do require the business to accept credit cards as a form of payment from their customers – as it is these credit cards receipts that are used to pay back the advance. Very good working capital products for retail (online and brink and mortar) as well as service businesses.

Accounts Receivable Factoring: Some businesses may find themselves in (according to baseball terms) as pickle – stuck between waiting for customers to pay on one side and having trade partners (vendors and suppliers) demanding payment on the other side. Let’s say your business purchases materials Net 10 days – meaning that you have 10 days to pay in full for those materials. You convert those goods into finished products in 5 days and ship them to your customer with a NET 30 day invoice – meaning your customer has 30 days to pay you. In these situations, Accounts Receivable Factoring can be used to obtain the working capital needed to pay off the supplier as well as purchase additional materials for another operating cycle. Then, when payment is received by your customer, the business can repay the Accounts Receivable loan or line of credit and use the remaining gross margin profits to cover other costs and overheads. Most factoring company will advance 80% of the invoice amount and base their approval decisions on your customer’s creditworthiness.

Purchase Order Financing: Purchase Order Financing is a great method of securing working capital for a business’s operating cycle. Let’s say that your business has one or more jobs that need to be completed but finds itself without the needed working capital to complete the job(s). A purchase order factor may advance your business the funds (up to 80% of the purchase order amount) – essentially paying your supplier or variable costs on your behalf – so that you can complete the orders, satisfy your customers and earn a profit.

The Importance of Capital Financing

Banks and other financial institutions have been able to control other institutions that handle the finances of other businesses. Nevertheless, in the last five years the existence of these institutions has increased as well as the availability of capital financing options that were nonexistent before.

One is the availability of capital financing through non-traditional sources of credit and the massive expansion of the sub-prime lending market since the early nineties.

In other words, a good finance broker can provide many financing options, a variety of lenders that operate in a market place with different types of equipment and capital financing structures.

In order for your business to work properly you need to have five factors aligned and organized. These factors are: staff, equipment, facilities, products and services, and cash flow. The latter is the most important one. It is the blood that runs through the veins of your business. Cash flow is the heart of your business, therein the importance of capital business financing.

For example, if equipment or vehicles are necessary, the finance department should provide a series of leases and options. If you are looking for a building, you should have a complete range of secured loans and commercial mortgages available to you. If a company needs capital, you must have access to a wide range of capital financing options and lines of credit.

Each and every component of the corporate structure grows and hampers along its development. The only constant is the growing need for capital. From the strongest economy to the worst recessions, capital financing will always be one of the key resources – additional to staff, motor vehicles and equipment, and local demand for capital in a growing business is insatiable.

Do not think about it too much. A broker is the best solution for your capital financing needs. You will save yourself the time you would otherwise spend doing research, going and calling places. Therefore, you are also saving yourself some money. Brokers know the market, have the expertise and the contacts that will allow you to get the financing you need quicker. With a broker you would have the confidence that your financial request will be taken seriously.

Working Capital Financing – Know How Essential It Is For The Success Of A Business

Capital is the lifeblood of every small and large sized company. When there is a deficit in capital, the company’s ability to reinvest, fund operations and meet production costs and payments gets affected severely. Therefore, it is better to find out a company’s working capital status before making any kind of investment decision. One of the best ways to continue with capital raising for a company and meet its regular cash flow requirements is to take advantage of different capital financing options available in the market.

A steady cash flow is what can keep businesses run smoothly for years. Sometimes, business owners forget to focus on this key element which can help their businesses to survive and sustain in spite of growing competition. However, they have access to different working capital financing options for managing adequate cash all the time. The capital generated through financing can be immediately used for the purchasing equipments, production, employee’s payroll, lease, and other type of operating cost that are part and parcel of a business. Even the most established business houses will have to think about capital financing when unexpected costs arise. By gaining a clear idea about the capital funding options, the business owners will be able to arrange their capital funds in a successful manner and meet all the business related expenses, which will again provide them with greater financial stability in the future.

Capital Finance – A Commendable Option For Small Businesses

Working capital financing is always important for small businesses. As compared to medium and large businesses, the small firms have minimal or limited access to equity capital market and other recognized sources of long term capital. That’s why they have to rely heavily on short-term debt solutions, most of which are closely associated with cash funding. However, limited access to equity and dependence on short-term debt causes a rise in the demand of a small firm’s cash flow, decreases liquidity, and grows financial leverage-all of which can lead to an increased financial risk of passing credit. Moreover, small businesses may face trouble in raising short-term debt and not getting enough support to secure the long-term debt required to enhance their financial status and liquidity, and minimize their credit risk. Working capital finance can play a key role in addressing this problem, especially by putting debt conditions that assure to keep a firm’s credit risk at the lowest.

Merits Of Working Capital Financing

Capital funding options ensure benefits to businesses in a number of ways. Let’s review some of them.

Capital finance addresses cyclical or seasonal capital needs of businesses. In fact, it builds up short-term assets required to revive operation and generate revenue, but which can be accessed only after giving cash payment.

Cash funding also aids in sustaining a company’s growth.

Working capital financing allows companies to invest in short-term assets that helps it operating successfully. It helps raising capital for prepaid business expenditure, like security deposits, licenses, insurance policies, and many more.

Working capital funding is used to undertake activities that can add to business operations and become successful, such as development in production unit, ongoing process and product improvements, and market expansion.

Working Capital Financing – Commercial Financing Solutions

Working Capital Financing is forever a major challenge for small and medium sized business in Canada. And that is certainly not to say that larger corporations don’t have that challenge, it’s simply a case of having more assets and resources to deal with the same challenge.

As a business owner or financial manager the level of funding that you need, and the method in which you achieve that financing is really what drives the solution to your challenge. It is important, in understanding your cash flow needs and solutions, to determine if your working capital financing is required due to the capital intensive nature of your business – or if you in fact simply need to ‘ monetize’, or ‘cash flow ‘ your assets in an effort to generate more working capital and faster turnover of those funds.

Your focus on cash and business financing becomes even greater if your sales and profits are increasing. However, at the same time the ability to obtain business credit in Canada remains a challenge.

Bank financing has become more difficult to acquire, and many firms are looking at non traditional or alternative sources of financing to secure the funds they need for working capital.

Another hard reality of working capital financing is that most small and mediums sized business are searching for more cash flow on an unsecured basis. This type of financing is very difficult to achieve in the Canadian marketplace, certainly in the Chartered bank environment.

So what are the sources of financial capital that Canadian business owners and financial managers can investigate and potentially utilize? Let’s cover off some of the basic options – These include:

Personal savings (not high on a business owner’s priority list!)

Business Credit Cards


Government Working Capital Term Loans – Financing Business Loan (These are cash term loans with fixed payments and rates)

Factoring financing

Asset Based lines of credit

When you are looking for working capital financing one of the key areas you can start with is your own key financial metrics. You don’t need to be a seasoned financial analyst to determine at what rate your receivables are turning over. The bottom line if you haven’t realized it yet (we are sure you have) is that receivables and inventory ‘ eat ‘ cash.

One key point needs to be made here, if your sales are growing at 15% and your receivables are growing at 15% that’s not a bad thing. (To calculate simply measure the ratio of these two data points) However, if your sales are growing at 15% and receivables are growing at 30% your cash flow and working capital is being consumed by the investment you have made in A/R and inventory that is not turning over. Collections and inventory turnover are a key aspect of working capital financing.