Financing Working Capital Receivable Finance Solutions Accessible Today

YOUR COMPANY IS LOOKING FOR RECEIVABLE FINANCE!

Managing Your Investment In Working Capital

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A Cautionary Tale Of Working Capital & Receivable Finance Financing

Have we got a story for you! There's an interesting old story /legend about a guy named Bernard E. Smith who at the time of the 1929 crash of Wall Street crash simply went around and saw what companies were building up receivables and inventory and maybe not selling enough either. We're not really focusing on ‘sales ' today though. The bottom line on this legend is that by simple observation of build up in receivables (and inventories) he became somewhat of a predictor for companies that would fail.

WHAT IS WORKING CAPITAL

Our friend at the ' textbook ' tells us that it is simply the relationship between your balance sheet accounts of current assets and current liabilities - knowing the relationship of those two allows you to measure your companies financial health as it relates to asset turnover and ability to generate cash. These accounts are short term funding components of your business - that day to day funding of your business relating to payables, payroll, fixed cost commitments, etc

Every company and industry has a business cycle that is a measurement of how cash turns over in your company

When Do You Know Your Require Accounts Receivable Financing

Receivable finance in Canada. Exactly what is included in working capital and when does your firm know it needs something new when it comes to financing working capital and understanding what solutions are available and when?

If you have a strong handle on receivables in your company you're in a position to know a lot about your cash flow and working capital. When we look at what our buddy Bernard Smith was doing he probably would have profited even more (he was ' shorting 'those companies ) if he had simply had solid access to an analysis of any company’s' A/R position.

THE CRITICAL RELATIONSHIP BETWEEN SALES AND ASSET TURNOVER

When you truly understand the relationship between sales and properly managed accounts receivable you're a more effective business manager or owner. That’s because you can only run so long on the concept of sales, and what one analyst called ' borrowing from the future '.

THE SALES/AR RELATIONSHIP - GROWTH AND INVESTMENTS IN RECEIVABLES

Financing working capital is needed when your receivables rise substantially over your sales growth. Poor collections and liberal credit terms are some other causes, and those require separate measures and actions. But today we're focusing on simple ' growth ‘, and that relationship between working capital accounts of receivables, payables, and inventories. Asset turnover management allows you to answer the question ' how to improve current ratio performance ' in your cash flow cycles.

So, two things. How can you track such a phenomenon, and secondly what is one solid solution for receivable financing in Canada?

YOU CAN TRACK YOUR SALES/RECEIVABLES RELATIONSHIP - HERE IS HOW

When it comes to tracking set up a very simple chart or spreadsheet around sales/receivables, and inventory. Simply track the actual growth rates over a specific period, say quarterly, even monthly if you want. (We’d say annually was a bit too late!)

If you find that sales are growing at 15% for example, and A/R and inventories are growing at 35% you will quickly start to feel a working capital and cash flow shortage. It's as simple as that!

IS BANK FINANCING AN OPTION

So if you can’t get support from a bank in Canada on your A/R and growth then perhaps its time to look at another option. That option is known as receivable finance, or invoice discounting is another term. You might not be able to get additional financing because you're growing to fast, or in some cases, you simply can’t meet bank criteria.

CONCLUSION

That's when it comes time to rethink your Canadian business financing strategy. The cost of factoring is often a consideration or concern, and business owners can address this by effectively understand how they can use the capital generated from invoice financing. If you have good gross margins you're even in better shape when it comes to assessing the cost of receivable finance.

So how to control working capital - we've shown it's all about staying on top of receivables and inventory balances, managing payables effectively which can be a solid driver of cash flow, and finally, understanding your Canadian business financing options.

Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in both monitoring working capital needs and assessing quality solutions for business cash flow and growth to capitalize on the true meaning of the working capital cycle and how it affects your long term business success.

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