Given the current economic uncertainty, effective cash flow management will be critical for the success of many businesses. This will likely involve a combination of:
- Managing working capital levels
- Managing discretionary expenses
- Obtaining additional financing
Working capital management can take the form of:
- Implementing Credit Policies
By implementing credit policies with your customers you can speed up the collection process. This could include requiring upfront deposits, reducing the credit terms or offering incentives for early payment. Always ensure you follow-up on overdue accounts.
- Utilizing a Just-in-Time Inventory System
Unless it will hurt your ability to sell, don’t carry extra inventory.
- Using Credit Terms to your Advantage
Unless they are offering worthwhile incentives, don’t pay your suppliers until it is necessary.
A tool that should be utilized to help with managements’ decision making, is a cash flow forecast. This will help you assess the impact of working capital and expense management decisions, as well as determine whether additional financing will be required.
If you decide that you need to obtain financing (see below), it is likely that the lender will require a forecast as part of the application process.
Obtaining Additional Financing
As part of the economic stimulus package, the Government of Canada is working to ensure businesses have access to traditional financing, from both the government and private lenders.
Among the products being targeted to COVID-19 relief are:
- Working Capital Loans
Funds to provide working capital for the operations, and cover general operating expenses, as opposed to capital purchases or expansions. There are currently programs in place where loans can be approved within 48 hours or maybe available without any payments for the first six months. BDC loans of up to $100,000 can be applied for online.
- Loan Guarantee for Small and Medium-Sized Enterprises
As part of the Business Credit Availability Program, EDC is partnering with financial institutions to guarantee 80% of new loans or credit requests up to $6.25 million for small and medium-sized enterprises. Financing is meant to be used for operating costs and is available to exporting and non-exporting companies. The idea behind the program is to encourage additional funding from banks as the EDC provides a re-payment guarantee of 80%. This program is now available through your bank or credit union.
- Bridge Financing Program
Offered through BDC Capital, this special program may match (with a convertible note) a current financing round being raised through qualified existing and/or new investors made into eligible Canadian start-ups. This program is best suited for high-potential companies that have venture capital investors willing to support them. BDC will then invest alongside these groups. There are separate criteria for both companies and investors who wish to take advantage of this program – for full details, click here.
- Term Loan and Lease Payment Relief
Ability to delay payment of principal for up to six months on existing loans.
- Increases to Existing Line of Credit
Financial institutions are providing increases to the borrowing limits on existing lines of credit.
- Purchase Order Financing
Flexible terms are being offered to ensure existing and future orders can be fulfilled.
- Buyer Financing
Export Development Canada is providing buyer financing and direct financing for international sales to ensure Canadian businesses are able to participate in international trade opportunities.
If your business requires cash flow management or additional financing, please contact your Smythe Partner directly as additional reporting may be required. Our team can match your business with the appropriate product and guide you through the process and provide financial information to the lending institutions.