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SOLVING YOUR BUSINESS CASH FLOW ISSUES - UPDATED 04/30/25
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Financing & Cash flow are the biggest issues facing businesses today
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Oakville, Ontario
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SOLVE THE BUSINESS CASH FLOW CHALLENGE
Business cash flow problems have us recalling that saying, ' don't sweat the small stuff ‘.
However, in your company's financing challenges, working capital/cash flows are never ' small stuff ' issues. They often can make or break, and depending on how you address them, even save or ruin your business. Let's dig in.
Cash Flow Crisis: The Silent Business Killer
Cash flow problems plague nearly 80% of Canadian small businesses at some point in their lifecycle.
When money stops moving, everything from paying suppliers to meeting payroll becomes a monumental challenge.
Let the 7 Park Avenue Financial team show you how without addressing these issues promptly, even profitable companies can collapse under financial pressure. Fortunately, proven strategies exist to diagnose, manage, and ultimately solve these critical cash flow challenges.
DOES YOUR BUSINESS HAVE CASH FLOW PROBLEMS? HERE ARE SOME REASONS WHY!
Cash flow problems in business and the challenges to your business arise from several reasons - it might be a sales revenue issue - ( too much/ too little/ inconsistent ) -
It sometimes comes down to how your company manages its cash flow, including issues such as credit extended to customers and its collection focus on money flowing into the business.
DO OUTFLOWS EXCEED INFLOWS? CAUSES OF COMMON CASH FLOW PROBLEMS FOR BUSINESSES IN CANADA
It's no surprise to any seasoned business owner that healthy cash flow in your company ensures you can thrive and grow -
Those cash inflows move in and out of your business on a day-to-day basis - The ability to fund your company on an ongoing basis regarding salaries, repayment of the debt and overhead expenses, and keeping payables current.
CASH FLOW PROBLEMS AND GROWTH - COMMON CASH FLOW PROBLEMS IN A BUSINESS
Some small business owners and mid-size companies also often don't realize that strong growth will often lead to working capital and cash challenges due to higher investment in receivables / collecting payments, payables, etc., or, in some cases, low profit margins at the expense of business growth.
The ability of your company to prepare proper ongoing financials is key. Agings of receivables and payables are good management data to keep track of growth and the quality of your profits.
Businesses that can't produce proper financials will often have a major challenge in getting business financing.
Commercial Business lenders and banks will focus on performance issues around bad debt and the ability of your company to take such losses.
That's where good credit checks and a strong overall credit and collection policy are key
Selling a product or service to a customer who does not pay is bad debt. Bad debts from non-paying customers can be extremely damaging to businesses of every size, particularly smaller companies that do not have the revenues or reserves to absorb the loss.
Although tight credit policies may limit growth, they still ensure survival! In some cases, you may want to invoice up front to assist in the effects of cash flow problems.
When your business faces daily working capital challenges, everything seems ' immediate'!
Some owners/managers are facing challenges meeting term or supplier obligations and are searching for creative ways to stem cash outflow. Some of those creative ways include using CRA HST and employee super-priority obligations in a less-than-constructive manner.
Here is an excellent article from Forbes on Cash Management in a business -
GROWING TAX OBLIGATIONS - NOT RECOMMENDED!
A separate account for your tax obligations might not be a bad idea. Using an outside payroll service to handle those remittances is also a solid cash management habit.
So how do business owners avoid, as well as fix, business cash flow problems? Under the avoid category, some time-tested strategies will always work well. These include:
Focusing on proper payables mgmt - without ruining supplier relationships for key vendors.
Slowing payables and speeding up collections is Cash Flow Management 101. Some top cash flow experts actually recommend assessing payables from a ' must pay/important to pay/flexible to pay' viewpoint.
Negotiating extended payment terms in a properly documented manner gives you the maximum flexibility in key cash outflows.
So what about actual business credit solutions to those business cash flow challenges for most business owners?
Canadian chartered banks are quickly becoming not only the providers of business credit. Although non-bank commercial financing solutions will always be more expensive than bank capital, the right non-bank lenders are also well-focused on building relationships and giving you back some control.
BUSINESS FINANCING SOLUTIONS TO THE CASH FLOW CHALLENGE
What are those ' cash flow fixes' available to replenish working capital and positive cash flows that are alternatives to bank solutions? These are the actions a business might take when experiencing cash flow problems.
FIXING CASH FLOW!
A/R Financing - factoring company solutions for outstanding accounts receivable such as Confidential Receivable Finance for outstanding receivables - liquid cash reserves on invoicing!
Inventory loans
PO/Contract Finance - purchase order financing / PO Finance allows businesses to fund larger orders and contracts outside their normal cash flow abilities. Talk to the 7 Park Avenue Financial team about PO Financing
Refundable tax credit bridge loans
Non bank asset based business credit lines
Sales/Royalty Finance
Sale Leaseback Options
Unsecured cash flow loans
3 REASONS WHY BUSINESSES RUN OUT OF CASH - THE CASH CRUNCH!
How you finance your working capital needs is the financial interaction of your assets and finance solutions that make or break your business. Canadian businesses run out of cash for some reasons that are simply just too obvious that they are missed! They include:
1. High sales growth - leaving you highly invested in A/R and inventory - but not a cash reserve!
2. Paper profits that don't equal positive cash flow generation - Great sales can hide a lot of problems around what good cash flow is !!
3, Poor asset turnover / heavy investment in fixed assets / poor margins
Statistics on Solving Business Cash Flow Problems
- 82% of Canadian small business failures are attributed to cash flow issues rather than profitability problems (Intuit Canada)
- Businesses that implement formal cash flow forecasting reduce their cash conversion cycle by an average of 33% (Deloitte)
- 60% of Canadian SMEs experience cash flow gaps of at least 15 days during normal operations (BDC)
- Companies using automated accounts receivable systems reduce days sales outstanding by an average of 30% (PaySimple)
- 67% of businesses with cash flow problems report delaying tax payments (CPA Canada)
- Canadian businesses with effective cash flow management are 2.3x more likely to secure favorable financing (CFIB)
Case Study: Benefits of Solving Business Cash Flow Problems
A mid-sized Canadian manufacturing company specializing in custom metal components, faced severe cash flow challenges despite growing sales. With 60-day payment terms from major clients and upfront material costs, they frequently struggled to meet payroll and supplier obligations.
After implementing a comprehensive cash flow solution the company experienced remarkable transformation:
- Reduced their cash conversion cycle from 87 days to 42 days
- Decreased reliance on their line of credit by 65%
- Eliminated late supplier payments completely
- Secured a 3% discount from key suppliers through consistent early payment
- Improved employee retention by eliminating payment uncertainty
CONCLUSION - SOLVING CASH FLOW DIFFICULTIES IN A CHALLENGING ENVIRONMENT
If you are focused on saving your business's future with proper financing while avoiding business cash flow problems,
If you experience cash flow problems, we'll identify potential solutions. Getting enough cash flow for your profitable business is our job #1!
Call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor who can assist small businesses like yours with their needs regarding common poor cash flow problems.
FAQ :FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION
HOW CAN A COMPANY SOLVE CASH FLOW SHORTFALLS INTERNALLY?
Business owners can solve the liquidity challenge in several ways.
- Establishment of solid credit and collection policies and adherence to payment terms
- Offering a pre-payment discount to clients
- Negotiating more favourable terms with suppliers
- Review internal spending
- Employing effective asset procurement via leasing assets
- Maintaining ongoing cash flow forecast projections/cash flow statements around sales and collections
What are the most common causes of cash flow problems in seasonal Canadian businesses?
- Insufficient planning for off-season expenses
- Poor inventory management leading to tied-up capital
- Inadequate cash reserves for predictable slow periods
- Limited access to flexible credit options
- Failure to adjust staffing levels appropriately
When should a growing business consider factoring invoices to solve cash flow challenges?
- During rapid expansion phases requiring immediate working capital
- When dealing with customers who consistently pay on extended terms
- Before seasonal demand increases that require inventory buildup
- After securing large contracts with delayed payment schedules
- During periods when traditional financing options are unavailable
Why do profitable businesses still experience cash flow problems?
- Revenue recognition often occurs before actual cash collection
- Rapid growth requiring significant capital investment
- Inventory expansion tying up available funds
- Tax obligations consuming available cash reserves
- Mismatch between payment cycles and revenue generation
How does effective accounts receivable management resolve ongoing cash flow issues?
- Streamlines the collection process to reduce days sales outstanding / late payments
- Provides early identification of problem accounts before they affect operations
- Creates predictable cash inflows for better planning and better cash flow projections
- Reduces reliance on external financing for major unexpected expenses requiring more money
- Improves customer relationships through clear payment expectations
How does solving cash flow problems impact business growth opportunities? Solving cash flow problems directly enables businesses to capitalize on growth opportunities without hesitation. With stabilized cash flow, companies can invest in new equipment, expand product lines, hire needed talent, and respond quickly to market changes—all without the paralyzing fear of running out of operating capital.
- Allows for strategic rather than reactive decision-making
- Creates capacity for opportunistic purchases
- Enables confident pursuit of larger contracts
- Supports research and development initiatives
- Provides foundation for sustainable expansion
What specific advantages do manufacturers gain from solving cash flow problems?
Manufacturing businesses that solve cash flow problems gain particular advantages due to their capital-intensive operations. Improved cash flow enables better raw material purchasing, more efficient production scheduling, and stronger negotiating positions.
- Ability to purchase materials in optimal quantities
- Capacity to maintain appropriate inventory levels
- Flexibility to adjust production schedules efficiently
- Opportunity to negotiate volume discounts with suppliers
- Resources to modernize equipment and improve productivity
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Why do businesses with stable cash flow typically secure better financing terms?
Businesses with stable cash flow secure better financing terms because they demonstrate lower risk profiles to lenders. Consistent cash management signals operational competence and financial stability—qualities that directly translate to preferential rates and terms.
- Lower interest rates on business loans
- Reduced collateral requirements
- Access to higher credit limits
- More flexible repayment structures
- Qualification for premium banking services
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Where do businesses see the most immediate impact after resolving cash flow issues?
The most immediate impact after resolving cash flow issues typically appears in operational stress reduction and improved vendor relationships. Businesses report noticeable improvements in team morale, supplier interactions, and overall business atmosphere within weeks of implementing effective cash flow solutions.
- Elimination of daily financial firefighting to fix the cash flow position
- Restoration of timely vendor payments
- Reduction in emergency financing costs
- Improved employee retention and productivity
- Enhanced focus on core business activities
What exactly constitutes a cash flow problem versus general financial struggles?
Cash flow problems specifically refer to timing mismatches between when money comes into and goes out of a business. Unlike profitability issues, these challenges can affect financially healthy companies that simply cannot access their capital when needed to meet obligations.
- Temporary inability to pay current liabilities around your financial obligations
- Delays between completing work and receiving payment
- Seasonal fluctuations creating predictable cash shortages
- Growth-related cash constraints despite increasing sales
- Tax or large expense timing creating temporary shortfalls
When should I consider invoice factoring versus a traditional line of credit?
Consider invoice factoring when you need immediate cash against outstanding invoices to creditworthy customers and traditional financing options are unavailable or insufficient.
Factoring works particularly well for businesses with long payment cycles or rapid growth.
- When customers have lengthy payment terms (45+ days)
- If your business lacks sufficient credit history and has poor cash flow management practices
- During periods of unexpectedly rapid growth
- When traditional financing has been exhausted
- If balance sheet weaknesses prevent conventional loans to solve cash flow problems
What indicators suggest a business is heading toward serious cash flow problems?
Consistently increasing days in accounts receivable often signals approaching cash flow problems. This key metric, combined with declining available cash, growing reliance on credit, and postponed vendor payments, creates a recognizable pattern before severe issues emerge.
- Extending payment terms to suppliers repeatedly
- Regularly reaching credit limit thresholds
- Declining cash reserves despite stable or growing revenue
- Increasing customer payment delays
- Rising inventory levels without corresponding sales growth
CITATIONS /MORE INFORMATION
- Business Development Bank of Canada. (2023). "Cash Flow Management Guide for Canadian SMEs." BDC Research Report, 12-18. Website: https://www.bdc.ca
- Shah, A. (2024). "The Impact of Technology on Small Business Cash Flow Management." Journal of Canadian Financial Management, 42(3), 87-102. Website: https://www.jcfm.ca
- CPA Canada. (2024). "Financial Literacy Survey: Cash Flow Challenges for Canadian Businesses." Toronto: Chartered Professional Accountants of Canada. Website: https://www.cpacanada.ca
- Statistics Canada. (2023). "Small Business in Canada: Financial Health Indicators." Government of Canada Publications, Ottawa. Website: https://www.statcan.gc.ca
- Williams, T. & Johnson, R. (2024). "Predictive Cash Flow Analytics: The Future of Business Financial Management." Canadian Business Review, 76(2), 112-127. Website: https://www.canadianbusinessreview.ca
