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What will cash flow financing cost your firm and what working capital cash facilities make sense?

Guest post by: Stan Prokop

Article Overview: Information on cash flow financing for Canadian business . How to pinpoint working capital cash flow needs and address that challenge with real world solutions that are cost effective .

What will cash flow financing cost your firm and what working capital cash facilities make sense?

Cash flow financing is typically what makes or breaks your company as your firm grows or struggles to overcome temporary challenges. Working capital cash finance is a top priority for small and medium sized business in Canada.

We hate taking the easy way out for an answer to those concerns, so we'll attempt to provide some real world immediate solutions for that working capital challenge that is always top of mind.

We haven't found anyone who does not disagree that working capital management tends to be the single most important measurement for your firm on a daily and ongoing basis - its always comes back to that ' cash flow is king' fellow!

If your liquidity is limited you need to recognize that. Your accountant, with all due respect will easily and quickly calculate your working capital and potentially advise you that you're in a great position. He or she does that by going to your balance sheet and subtracting current liabilities from current assets. Let's say he or she came back and gave you the great news - that you have 4 dollars of current assets for every one dollar of payables. Sounds great so far, right?

Wrong, because you might find that your actual cash on hand is only .30 cents for every dollar of payables due, and all your money is tied up in - you guessed it, receivables and inventory that are slow paying and slow turning, respectively.

So the reality is you have great working capital only if you feel very comfortable that you can pay bills, loans, leases, employees, etc!! .. as they come due . We don't meet a lot of business owners in the small and medium size business category that have that level of comfort.

So, why do you have a cash flow financing need, and what is the cost of a working capital cash facility that makes sense.

Sitting down with clients and talking about their cash flow needs often revolves around the same key issues they are going through : temporary financial losses, lack of long term financing ( i.e. buying or leasing non current assets without good long term debt solutions ) , and , you guessed it , your biggest problem - growth ! Dramatic increases in sales, as great as they sound, lead to cash flow financing needs.

An internal solution that will not cost you a lot and solve your working capital cash challenge is simply better turnover of receivables and inventory. That's easy for us to say and difficult for you to achieve, right? So, how does Canadian business address that - it's by monetizing receivables and inventory and in effect your future sales, via a cash flow financing facility.

If you firm is in a great industry, has clean balance sheets, and makes money your bank facility for a revolving line of credit will typically be in the 5-10% per annum range for cost of financing.

If your firm doesn't qualify for bank financing should you abandon ship? Definitely not. Working capital financing via receivables financing and based lending']);"> asset based lending can solve all your problems and in effect turn your firm into a cash flow machine.

That new found cash flow comes at a price, as rates can be in the 1% or 2% per month range, but you are actually paying that now by carrying A/R and inventory and losing out on the opportunity cost of turning capital into new sales and profits.

Speak to a trusted, credible and experience Canadian business financing advisor for your cash flow financing solution that makes optimal sense for your company.

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Article Tags: cash flow financing, working capital cash



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