optimize your working capital

In challenging times, optimize your working capital for success

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When a business needs to adapt and pivot, having sufficient resources and funds are critical. Here’s why you (or your client) need to optimize your working capital.

optimize your working capital

 

Whether dealing with supply chain issues, inflation concerns or the rising cost of inputs, North American business owners in almost every sector are facing another year of adapting and pivoting. For most, having sufficient working capital is key to surviving and thriving in unpredictable market conditions.

While North American markets continue to recover from post-pandemic market uncertainties, the supply chain continues to experience pressures that are affecting businesses in the United States and Canada. For example, U.S. storage prices continue to increase, up 1.4% month-over-month and nearly 11% year-over-year.

In an uncertain environment, sales are only one part of the equation. Keeping a close eye on the full state of your finances can ensure your business is operating as efficiently as possible and that you have the balance you need to weather volatility.

The benefits of optimizing working capital

Properly managing your finances ensures you have cash on hand to meet day-to-day responsibilities — mainly payroll and ordering inputs from suppliers. Working capital optimization also means your cash is being used efficiently. 

Working capital takes these factors into account:

  • Assets – cash, accounts receivable and inventory
  • Liabilities – accounts payable, taxes payable and debt to be repaid in the next year

Regularly reviewing each of these elements, and how they work together, is crucial during challenging times. Even if your client’s financial situation seemed stable just recently, industry, seasonal and market factors are constantly in flux, which can change parts of the equation — such as the number of days accounts receivable are outstanding — on short notice.

When you actively optimize your working capital levels, you’ll be able to meet short-term obligations, pivot and respond to challenges, such as supply chain fluctuations or inflationary pressures. It will also allow you to take advantage of opportunities to grow.

steps to optimize working capital

Three steps to help optimize your working capital

Moving forward with confidence in this market means having the right balance of working capital. The good news is, you can take action to optimize it now. Here’s how to start:

1. Know where you stand

Start by looking at your liquidity. To do this, calculate your working capital ratio: current assets divided by current liabilities.

Working capital ratio = Current assets/Current liabilities

The working capital ratio will give you a sense of whether your business has enough cash on hand to meet day-to-day responsibilities, but not so much that you’re missing out on opportunities to put it to work!

Depending on the industry, most analysts consider a healthy ratio to be between 1.5 and 2.

You’ll also want to take a look at your cash conversion cycle (CCC) — a financial indicator of your cash liquidity position and ability to maintain highly liquid assets.

The CCC is calculated by taking the number of days it takes to sell inventory minus the days it takes you to pay vendors, plus the days you need to collect on invoices.

Cash Conversion Cycle = Number of days to sell inventory – Number of days to pay vendors + Number of days to collect on invoices

Ultimately, the results can point you to areas you may need to improve, such as the number of days it takes to receive payment on an invoice.

2. Take control of your receivables and payables process

To optimize a working capital ratio that is less than ideal, consider making changes that may help free up cash on both the accounts receivable and payable side:

  • Strive to streamline invoicing: Getting paid promptly means minimizing chances for delay or dispute. Clarity and timeliness are key — start by sending out invoices as soon as the project or order is complete. Make sure your invoice contains the full name and address of your business and your tax number. Also ensure the invoice clearly lists terms (such as net 30 days) and a purchase order number. To avoid disputes, itemize invoices and confirm charges, attaching backup documentation if possible. Send out friendly reminders at certain points after the invoice is sent and once the due date passes.
  • Increase automation: Moving to digital tools for generating, sending and paying invoices may help speed up the payment process and eliminate manual errors. A recent survey found automation of the accounts receivable process led to a 60% decline in missing invoices and a 59% reduction in delayed payment. 
  • Request incentives for early payment: On the accounts payable side, consider leveraging your positive relationships with suppliers to negotiate a discount for paying outstanding invoices early or request flexible payment terms. You may also be able to take advantage of discounts if you purchase supplies in bulk.

3. Take action to address gaps

If your working capital is still off-balance because cash is tied up in accounts receivable, with customers paying invoices at 60 or even 90 days, it may be time to seek an alternative option. Consider how solutions such as invoice factoring may be able to alleviate cash flow issues quickly by turning your near-term assets into liquid capital that you can use immediately.

By selling your credit-worthy invoices to Liquid Capital, you can receive 80% or more of the value of your accounts receivable, eliminating bottlenecks and allowing you to more effectively manage your finances. 

Regularly reviewing and managing your working capital will put you in an ideal position to meet changing industry and economic conditions head-on.

 

Want to learn more about how Liquid Capital can help you or your client navigate market conditions and optimize working capital? Contact us today.

how to fund your staffing agency’s growth plans

Start meeting market demand: Here’s how to fund your staffing agency’s growth plans

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To remain competitive, your staffing agency’s growth plans need to be supported by a healthy cash flow. Here’s how invoice factoring can help.

how to fund your staffing agency’s growth plans

 

Job vacancies have been hitting all-time highs across most industry sectors. But for staffing agencies, it means business is booming—and there’s potential to grow quickly to meet market demand. But the ability to meet payroll is a major challenge for staffing agencies looking to grow their business.

So what’s the best way forward? Keep reading to find out why working capital is critical to success and how alternative funding options could open opportunities for growth.

 

New opportunities for staffing agencies

The pandemic redefined the workforce, shifting traditional work models and accelerating the talent shortage. It led to the Great Resignation and Quiet Quitting, followed by further shake ups in the market, such as high inflation and wage increases. Despite the potential for an economic downturn, workers continue to demand increased flexibility such as remote and hybrid work arrangements.

Many businesses and government organizations are concerned about what’s ahead, and whether they will be able to obtain the talent they need. This staffing shortage has had a profound effect across sectors, from healthcare and construction to hospitality, retail and manufacturing. For certain sectors, such as healthcare, these shortages have been particularly acute.

For staffing agencies, however, it represents an unprecedented opportunity for growth. But taking advantage of these opportunities requires working capital and steady cash flow. It often requires funding major expenses, such as payroll, through traditional financing methods while waiting for clients to pay their invoices.

New opportunities for staffing agencies

A staffing agency is only as good as its staff

The cost of payroll financing is high, particularly when hiring high wage earners such as IT and medical professionals. If a staffing agency needs to pay those professionals every two weeks, but clients pay their invoices in 30, 45 or 60 days, your ability to meet payroll, hire new staff and increase sales can be a challenge.

Many traditional banks are tightening their lending criteria. Without access to working capital, staffing agencies often struggle to meet payroll and end up passing on business growth opportunities.

How alternative funding can help staffing agencies meet demand

If your staffing agency has to wait on client payments to hire and pay staff or meet other business growth objectives, invoice factoring could be the solution to your working capital needs.

Staffing agencies can use invoice factoring to reliably and quickly access the working capital they need. Unlike traditional financing options, invoice factoring doesn’t depend on how long you’ve been in business or require the same types of documentation. Essentially all you need is credit-worthy clients and customer accounts receivables to secure your funding.

How does it work?

Liquid Capital purchases your outstanding invoices, advances your business up to 85% of the value of your invoices and collects payment from your clients. You receive the working capital you need to pay staff and take advantage of opportunities to grow your business. The remainder is paid back to you on receipt of payment minus factoring fees.

You also decide how long you need to use factoring services—and you won’t be locked into a long-term contract. So during months where you have adequate cash flow and don’t need to factor your invoices, you’re able to opt out of the process.

Factoring-How-It-Works

Perhaps just as importantly, by working with an alternative lender like Liquid Capital, you’re forming an invaluable partnership with an experienced advisor who will look past current challenges to see your potential—and will work alongside you to find the right funding solution to grow your business.

Meeting the demands of the healthcare sector

A staffing agency in the healthcare sector came to Liquid Capital for invoice factoring. The company had been invoicing $30,000 a week but had to use personal credit cards to make payroll while waiting for client invoices to be paid. Not a comfortable situation.

Over time, it became harder to make the minimum payments on the cards, which meant the staffing agency wasn’t able to take on new contracts and grow the business—at a time when demand was high for its services.

A staffing agency is only as good as its staff

Taking advantage of Liquid Capital’s invoice factoring services means they’re now able to stop worrying about cash flow. They can mitigate the challenges of waiting for invoice payments, allowing them to focus on growth—taking on new contracts, growing revenue and training staff.

This has had a profound impact on their business. Two months after they began invoice factoring with Liquid Capital, the staffing agency recorded a six-fold increase to their weekly invoice total. They were then able to hire and place more staff and accept more government contracts.

“All of my clients tell me, ‘I sleep better at night, knowing that I’m going to have the liquidity to operate and I know there are no more limitations.’”
—Liquid Capital Principal

 

Easing cash flow pressures to achieve success

With conditions changing rapidly across industry sectors and in the broader economy, a staffing agency’s ability to respond quickly to meet challenges or opportunities is crucial to success. Invoice factoring can ease short-term cash flow pressures and free up the time and overhead spent monitoring and collecting accounts receivable to remain competitive and focus on new opportunities.

 

Are you looking to access flexible funding for your staffing agency? Contact a Liquid Capital Funding Expert today to learn how our alternative funding solutions can help you be ready for anything.

funding your business

8 things a brutally honest BDO would tell you about funding your business

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For growing businesses, having access to working capital and keeping a healthy cash flow is critical. However, it can often feel like funding your business is a constant challenge. Don’t despair – the following truths will help you maintain the upper hand.

funding your business

 

Maybe you’re an entrepreneur or start-up, and your money is tied up in outstanding invoices. Maybe your business has seasonal buying cycles, and finding cash flow during slow months is challenging. Maybe you’ve completed work or shipped products, but you’re still waiting to get paid—and in the meantime you have bills to pay.

No matter what your situation is, working capital is the lifeblood of your business. However, finding the funding that’s right for your needs isn’t always easy.

You need to stop losing sleep worrying about covering your operating expenses, growing your business or overcoming cash flow hurdles. 

Here are eight brutally honest things a BDO would tell you about funding your business and achieving your goals.

 

1. The bank can’t always have your back.

Thinking that the bank will be there when you have an exciting new opportunity? Or that they’ll be understanding if you are a relatively new business and can’t provide years of financial reports? As much as your banking representative wants to help you, it doesn’t necessarily mean that they can help you.

In the current economic landscape, many banks have revised their lending criteria and are tightening the purse strings, leaving business owners looking for alternatives to traditional funding. Meanwhile, business needs to keep moving forward.

2. You may think you’re ready for funding, but are you really?

We get it. Running a business (especially if you’re running it on your own or with a small team) is a lot of work – and keeping up on your books may not always be a top priority. 

But if your financial files aren’t in order, if your invoices aren’t properly written, or if you don’t have the right documentation – then securing funding can be even harder.

Start with three items: your budget (planned vs. actual), your income statement and your balance sheet. 

Depending on the lender requirements and type of financing, you might need to prepare a cash flow budget or projections – though it’s always good practice to have this in order anyway. You’ll also want to perform a UCC or PPSA search to ensure your record is clean. Even if you think there are no security registrations filed against your company, it’s worth double-checking the official records. Also, pull a credit report on your business (and on yourself). Sometimes these reports have incorrect information, and it’s important to be aware of mistakes so you can fix them.

 

LC-How-to-become-lender-friendly-eBook2

Make sure you’re set for success. 

Access your guide to becoming lender friendly

 

 

 

3. Not everyone understands your vision.

Chances are when you started your business you had big dreams and plans to grow your company into something great.

So you dedicated yourself to building your business. But have you surrounded yourself with partners and a team that sees the same potential as you do?

When looking for a funding partner, you need to find someone who not only understands your funding needs, but also understands the intricacies of your industry, and what makes your business special.

Traditional funding sources may not always take the time to get to know and understand the ins and outs of your business. When you work with the right alternative funding partner, they’ll take the time to get to know you and your business. That can make all the difference in being able to capitalize on new opportunities.

 

4. Cash flow is the key to agility.

Unless you have a crystal ball, you’ll never be able to accurately predict what will happen to your business and the market in general. If you want to achieve long-term success, then you need to be agile and prepared to make quick course corrections. 

funding your business isn't always clear

Preemptively building a funding toolkit to overcome whatever opportunities or challenges you may face is critical. And that toolkit should include alternative funding sources. 

Even if you don’t need to factor your invoices right now, being prepared and having a reliable source you can turn to will help you respond quickly to whatever may come your way.

 

5. Question what you are told.

Not all factoring companies are the same—so it pays to do your homework. Many are not transparent, with unexpected or hidden fees or contracts that make it hard to move away from their funding solution. 

For example, the upfront rate may be low, but there could be add-ons that ultimately drive the price much higher, like ‘same-day’ funding. Make sure their terms are straightforward. Still unsure? See if the factoring company has customer case studies or testimonials.

At the end of the day, it’s your business, your livelihood, and it’s on you to thoroughly investigate your funding options and develop a robust working capital strategy with partners you trust.

 

The invoice factoring guidebook download

Ask these questions when selecting an invoice factoring partner

 

 

 

 

6. Generic solutions aren’t enough.

While it’s tempting to assume that you can gain access to a funding facility and easily solve your problems, the truth is that your business is unique and requires a careful look at your operations to design the right approach.

At Liquid Capital, we’re business owners too, so we understand one size doesn’t fit all. We’ll take the time to get to know who you are, what your goals are, and the intricacies of your business that make it unique.

funding your business with online lenders

 

7. Values matter.

It might sound corny, but aligning yourself with a funding partner who shares your values matters. They will have access to your company and your clients’ information, and you’ll be working with them closely throughout the funding process.

If you can’t be sure that your partner shares your values, then you can’t be sure they will have your back when you need it.

 

8. Invoice factoring is mainstream.

Though you may not be familiar with invoice factoring, this powerful alternative funding solution has been – and is being – used by many businesses, just like yours.

At Liquid Capital we’ve helped businesses across a variety of industries unlock the power of their invoices, and accelerate their cash flow. But why not hear from business owners that we’ve worked with before?

Discover how we’ve helped businesses just like yours access the working capital they need, when they need it.

Read our client Success Stories here.

 

What sets Liquid Capital apart?

We’re North America’s leading invoice factoring specialists, with the largest network of offices across North America. In fact, we’ve deployed over $3 billion in working capital to help businesses grow.

Our Liquid Capital Principals are growth strategy and funding experts who make sure you understand available options so you can pick the right solution for your business.

We offer immediate financing upon approval—up to $10 million, often within 24 hours—along with personalized strategic guidance. Funding isn’t dependent on your balance sheet or time in business, and there are no long-term contracts, hidden fees or debt.

Ready to unlock the power of your – or your clients’ – invoices? Contact us today to learn more about invoice factoring.

Exit strategy

Why entrepreneurs need an exit strategy – and how invoice factoring can help

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A new year brings fresh ideas for your business – for some, this means scaling up. For others, it’s time to start thinking about moving on to other adventures with a well-crafted exit strategy.

Exit strategy

For small business owners, an exit strategy is an essential part of an overall business plan. It not only sets out a clear path in advance for who you plan to pass or sell your business on to when the time comes, but also the business and financial goals you hope to have in place by the time you exit.

One study found some 72% of Canadian small business owners had intentions to exit their business in the next 10 years, with half planning to sell to a third party. At the same time, 50% said they had no exit plan at all, 41% were working with an informal plan and only 8% had a formal written plan in place.

When it comes to deploying an exit strategy, having time on your side is key. It allows you to achieve the value you’re looking for and transition out of your company on your own terms. As one CEO suggests, business owners should be planning at least five years before their anticipated exit.

If you’re looking to create or refine your exit strategy, clarity is key to success — not only in terms of your timeline, but also your company’s finances and your vision for the business.

Here are a few areas to focus on:

 

Outline the ‘who’ and the ‘when’

When it comes to planning your exit strategy, having a vision of who your potential buyers are and when you are planning to sell is a good place to start. This will involve considering whether you plan to sell to a third party, a friendly buyer (such as your business partner) or pass the business on to the next generation.

Gain control of your financial picture

When the time comes to sell, as the Federal Deposit Insurance Corporation notes, potential buyers will be looking for reliability in terms of revenues, cash flow and profitability. A clear and up to date income statement and balance sheet are key factors that will ultimately drive value with your potential buyer, so these should be updated regularly in the lead up to your exit.

As such, before entertaining the idea of a sale, it’s important to have clarity over the state of your company’s finances, including inflows and outflows. If you’re preparing for your exit, it’s a good time to prepare a cash flow audit, so you know exactly where things stand.

Gain control of your financial picture

The audit will gather all of your company’s financial data to conduct a cash flow analysis, pinpointing areas of opportunity and weakness. This will give you (and potential buyers or successors) a clear sense of whether your company is meeting its goals.

Take action on working capital

If your cash flow audit identifies specific areas where your business is experiencing shortfalls, such as outstanding accounts receivables, it may be time to work towards better aligning your balance sheet – before your exit is imminent.

For businesses facing cash flow roadblocks as a result of unpaid accounts receivables or recession-related challenges, invoice factoring may provide the working capital you need to even up the balance sheet.

Consider growth opportunities

Even though you’ve got your eye on your next move, it’s important to keep your business growth plan top of mind when you’re considering your exit strategy. As PwC explains, potential buyers may be willing to pay more for future growth, whether new products or expansion into another geographic market.

At this phase, it may seem prudent to automatically dismiss opportunities for strategic business growth because money is tied up in accounts receivable.

Consider growth opportunities

Instead, consider how alternative funding solutions such as invoice factoring can help quickly secure a reliable source of working capital, allowing you to take your business to the next level and eventually help you achieve the greatest value when it’s time to sell. 

Ultimately, taking the time to prepare an exit strategy from your business will not only ensure you get to maximize value and leave on your terms, but that your company will continue to perform and meet its goals – even after you’ve moved on.

Whether you are looking to grow or sell, cash flow is key. Learn more about the benefits of invoice factoring.

 

2022 top blogs for business growth

2022 Year in Review: Top blogs for business growth

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Our top blogs for business growth from 2022 will set you or your client on the path to success in the year ahead.

Top blogs for business growth

From cash flow management tips and learning how to determine a company’s cash conversion cycle, to the benefits of invoice factoring, the overarching theme that these blogs shared was preparation.

So kick off 2023 with a solid funding toolkit and a clear plan for whatever the future may hold for you or your clients with these top articles of the year!

 

cash flow budget

Create your cash flow budget 

For companies to grow and thrive, they need to have adequate cash flow so they can fulfill financial obligations such as paying salaries, vendors, suppliers, loans and investing back in the business. Creating a cash flow budget shows you exactly how much cash is coming in and how much is exiting your business accounts.

Read more now
determine your company’s “cash conversion cycle”

How to determine your company’s “cash conversion cycle”

As a business owner, you want to make sure you have the money you need when you need it, and the very last thing you want to experience is cash flow issues that restrict business operations. Understanding your cash conversion cycle (CCC) is key to ensuring you’re on top of your company’s working capital. Learn the basics of a “cash conversion cycle” and how you can use it to your company’s advantage.

Read more now
5 tips to reduce business debt

Reduce business debt and increase your available working capital

Growing businesses need to have ample access to working capital, but carrying debt is a problem that holds many companies back. Don’t let your business debt hold you back from achieving your goals. Use these top tips to get back into good financial standings.

Read more now
Top 4 things to consider when choosing your invoice factoring partner 1

Choose the right invoice factoring partner

When your business is poised for a major growth opportunity or you’re about to make a significant operating decision, your cash flow is vital. If you’ve decided that invoice factoring is the solution for your cash flow needs, here are the first 4 things you should consider when choosing a factoring partner.

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Top blogs for business growth - invoice factoring companies help fund business growth

How can invoice factoring companies help fund business growth?

Running a business is stressful. Funding your business growth shouldn’t be. Working with an invoice factoring company could help you unlock the power of your outstanding accounts receivables, so you can focus on growing better and stronger.

Read more now
top blogs for business growth - Recession-proof your business and thrive during challenging times

Recession-proof your business and thrive during challenging times

Ensuring your business is prepared for recession takes a multi-pronged approach – focused on your network, your cash flow and some strategic thinking. Here are ways to guard your company against the coming challenges:

Read more now

If you or your client are looking for new ways to fund business growth, contact your Liquid Capital Principal today!

growth in the energy sector

Leveraging alternative funding to fuel growth in the energy sector

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Companies are preparing to seize new opportunities for growth in the energy sector. Are you ready to join them?

growth in the energy sector

For small to mid-sized companies in the energy, oil and gas sector looking for opportunities to take their businesses to the next level, the last couple of years have proven to be anything but easy – but with the industry poised for growth in 2023, putting yourself in a position to be able to take advantage of new projects is paramount.

Although a potential recession is on the minds of many small and medium-sized business owners heading into 2023, growth in the energy sector is set to continue.

 

Continued recovery after volatility

Helped by factors including tailwinds from the completion of the Trans Mountain Expansion pipeline and the Coastal GasLink natural gas project next year, the Canadian Association of Energy Contractors (CAODC) is projecting a 15% increase in the number of wells drilled in 2023, as well as more than 5,400 direct and indirect jobs created in the sector.

This is a far cry from the situation the sector faced only a couple of years ago.

The first year of the pandemic was volatile for all players in the oil and gas space, with demand for energy products falling – and the industry experiencing historic low oil prices and drilling activity, says the Canadian Association of Energy Contractors (CAODC.)

Following the challenges of 2020, oil and gas extraction industry revenue grew in 2021 thanks to a rebound in economic activity, rising oil and natural gas prices and increased production volume as demand for energy products climbed, says StatsCan.

This year, recovery has continued for the sector as energy prices reached record highs — although oil prices have eased off since the summer peak, they are still well above the levels seen during the early part of the pandemic.

growth in the energy sector Continued recovery after volatility

On the ground, cash flow challenges continue

In spite of improving conditions for many oil and gas companies, small and mid-sized energy firms still face challenges when it comes to cash flow and getting invoices paid on time.

Although many smaller producers are building relationships with large, reputable customers in the oil and gas sector and have agreements in place for their invoices to be paid at net 30 days, payment often gets extended to net 45 or 60 days.

In many cases, customers in the sector are stretching out payment terms even as far as net 90 days, because of the realities of their own cash flow cycles. When combined with small margins, many energy companies find it hard to take advantage of opportunities to grow.

 

How alternative funding helps energy companies succeed

As Deloitte notes, more than 90% of oil and gas executives are positive about the industry in the coming year. With the chance to take advantage of new business in the sector, having quick, reliable access to working capital is essential. In this economy, however, banks are tightening their lending criteria and re-evaluating lending risk as interest rates rise.

An alternative funding solution like invoice factoring can help ensure you’re in a position to hire new employees, meet payroll and confidently say yes to taking on new projects.

Whether you are in exploration, extraction, refining or another part of the upstream or midstream oil and gas industry, an alternative lending partner with the expertise in helping companies in this sector grow is not only a source of working capital – but will see the potential in your business, go deeper into your story and be a valuable source of advice as you navigate your next steps.

How alternative funding helps energy companies succeed

With large, credit worthy customers in the sector, small and mid-sized oil and gas companies are perfectly positioned to take advantage of invoice factoring. This flexible solution will help accelerate your cash cycle, quickly replacing your near-current assets — or invoices — with cash. 

With an invoice factoring solution, your business will receive up to 85% of the value of your invoices and the factor collects payment from your customers on your behalf. The process can also be customized to meet your needs, so you won’t be locked into a long-term contract.

Asset-based lending is another flexible funding option that allows you to secure a line of credit against all your valuable assets, including accounts receivable, inventory, equipment and real estate. With borrowing amounts typically calculated weekly, the ability to borrow can increase more quickly for companies in a strong growth cycle.

Looking to the future

With demand in the energy sector set to continue in 2023, forward-thinking energy companies are looking to agile, flexible funding solutions to ensure they’re positioned to take advantage of opportunities to build relationships and grow their market share.

Are you or your client looking to access flexible funding for your energy company? Contact a Liquid Capital Funding Expert today to learn how our alternative funding solutions can help you be ready for anything.

 

growth in the manufacturing industry

Remain agile and lay the groundwork for growth in the manufacturing industry

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To experience growth in the manufacturing industry, companies need to be ready to pivot in the face of changing conditions.

growth in the manufacturing industry

While demand has recently been steady for companies in some sectors, for others it has eased off. For instance, this year in the manufacturing industry, persistent industry and economic roadblocks are making it hard for manufacturers to stay agile, meet their obligations and take advantage of opportunities to grow.

So what is the best way forward for manufacturers, no matter what scenario they find themselves in? Keep reading to find out more about the factors affecting growth in the manufacturing industry and why having the working capital to stay flexible is critical to success.

 

Unpredictability is the new norm for manufacturers

For most in the industry, conditions have been in a constant state of flux over the last three years, starting with the COVID-19 pandemic, where restrictions affected more than 85% of Canadian manufacturers in 2020.

The sector faced major supply chain issues between the onset of the pandemic and summer 2022. In Canada, the total number of manufacturers dealing with raw materials shortages nearly tripled during that time. And a July 2022 Deloitte survey of more than 200 U.S.-based manufacturing executives found that shipping delays and part shortages had the biggest impact on manufacturers’ supply chains in the previous 12 to 18 months.

Respondents also noted that their top operational concern is the rise in shipping costs, which Deloitte says rose by more than 77% from January 2021 to August 2022, due to rising fuel prices, labour costs and logistics challenges.

 

Manufacturers may have also experienced suppliers reneging on contract pricing, increasing their costs at short notice in response to rapidly shifting global conditions, such as COVID-19 restrictions and the war in Ukraine.

 

While sales came back – growing nearly 28% between January 2020 and June 2022 — challenges continue. Although the Bank of Canada notes that inflationary pressures from supply bottlenecks are easing, economic growth is expected to slow next year – to 1% in Canada and 0.2% in the United States.

Faced with their own economic hurdles, your customers may be paying their invoices at net 45, 60 or even 90 days – creating a longer payment cycle that hinders your ability to meet your payment obligations or even to take on more contracts.

In tough economic conditions, ensuring your manufacturing business can continue to thrive really means having enough working capital on hand to pay employees and meet day-to-day obligations, as well as purchase inputs and take advantage of any opportunities to grow your market share.

But as many traditional banks are tightening lending criteria, this may mean looking to a more flexible funding solution.

helping manufacturers through a volatile market

Alternative funding — helping manufacturers through a volatile market

Finding a funding partner that considers the creditworthiness of your customers — not the immediate challenges facing the industry — may be the ideal solution for manufacturing companies looking to meet day to day obligations in this environment, and those hoping to take advantage of strategic opportunities to grow.

Even if your manufacturing business doesn’t align with traditional lending guidelines, asset-based lending (ABL) or invoice factoring , can offer you alternative financing that’s both fast and flexible.

For companies with a strong credit rating and verifiable financial reporting (such as receivable and payable summaries), ABL has the ability to secure loans against your accounts receivable, inventory, equipment and real estate.

Similarly, invoice factoring can also help manufacturers accelerate their cash cycle, quickly replacing near-current assets — or invoices — with cash.

With factoring, Liquid Capital purchases your outstanding invoices, advances your business up to 85% of the value of your invoices and collects payment from your customers — which allows your company to avoid costly interruptions to your manufacturing cycle. You receive the working capital you need to pay employees, replenish inventory or components to make further sales — and take advantage of opportunities to grow your business.

Factoring-How-It-Works

Perhaps just as importantly for manufacturers in this market, by working with an alternative lender, you’re forming an invaluable partnership with an experienced advisor who has deep knowledge of your industry, will look past current challenges to see the potential in your business and will work alongside you to find the right funding solution.

Looking beyond traditional criteria

Take E-Systems Corp. for example – an electronic contract manufacturer providing services and products to major U.S. defense contractors, health care device manufacturers, and the entertainment and consumer electronics industries. Although the company was on a high growth trajectory, it still didn’t meet the rigid, technical criteria for traditional bank financing.

Invoice factoring represented the ideal way for E-Systems Corp. to free up money tied up in accounts receivable, to fund its rapid growth.

While E-Systems Corp. had a huge backlog of booked orders — almost $1 million worth — it lacked the funds to buy the supplies it needed to manufacture orders. To further complicate things, as the company formed through the acquisition of another firm, it was considered a new entity and didn’t qualify for traditional bank financing. The owners also were not willing to give up equity to attract additional capital.

However, its strong portfolio of credit-worthy invoices made the company a prime candidate for invoice factoring. Through factoring, the company was not only able to receive between $85,000 and $125,000 of funding each month, but also the critical advice and partnership that Liquid Capital provides that extends far beyond factoring.

 

“Whenever a company is growing, it will experience cash flow anomalies. Factoring helps us reduce the time delta between paying our suppliers and getting paid by our customers. It provides us with the up-front cash we need to finance our growth.” — Ron Finlayson, Chief Executive Officer & Chairman, E-Systems Corp.

 

For another manufacturing company seeking a more flexible approach to financing, Liquid Capital’s approach to invoice factoring also proved to be the right move. Ridgeline Manufacturing, manufacturers of aluminum recreational products primarily for the summer, had limited off-season cash flow and challenges accessing traditional financing as their building and tangible assets were only worth 40% of their original price tags.

Ridgeline Manufacturing

While Ridgeline pursued invoice factoring with other providers, co-owner Nick Newman was not in favour of the short-term approach or lack of flexibility within most factoring contracts, including the need to pay interest on lines of credit even if he wasn’t using the funds.

After meeting with Liquid Capital, Nick liked the idea that there were no minimums and no penalties for factoring one day and not the next. He also appreciated that Liquid Capital didn’t charge interest on money already collected.

 

“Sure, factoring is higher interest, but we build it into the cost of our product and it’s seasonal. So if I pay more than I would with a bank, but can factor for just a few months a year, that’s a big bonus.” — Nick Newman, co-owner, Ridgeline Manufacturing

 

Staying flexible in this economy to achieve success

With conditions changing rapidly in the industry and the broader economy, a manufacturer’s ability to respond quickly to meet challenges or opportunities is crucial to success. Agile manufacturers are leveraging alternative funding to get quick access to the working capital they need, bypassing the bank bottlenecks that are even more pronounced in this economy, so they can keep things moving.

Are you or your client looking to access flexible funding for manufacturing? Contact a Liquid Capital Funding Expert today to learn how our alternative funding solutions can help you be ready for anything.

 

long-term organizational success

Fostering innovation for long-term organizational success

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Leaders need to foster and embrace innovation in their companies to unlock long-term organizational success. 

long-term organizational success

 

For businesses in most sectors, continuing to adapt, focus on and embrace innovation is critical when it comes to standing out from competitors and overcoming oversaturated markets — ultimately cementing your long-term success.

In fact, according to one study eight out of 10 digitally maturing companies say innovation is a strength of their organization, as they report constantly driving toward digital improvement and investing more in innovation than less mature organizations.

But as Deloitte’s 2021 Innovation Study found, for some companies, innovation has become both a business-critical concept and a buzzword that means nothing at all.

To avoid simply paying lip service to the broad concept of ‘innovation,’ which can result in missed opportunities and put you at risk of falling behind the curve, leaders need to nurture an environment where productive, valuable ideas can genuinely flourish.

For many, the key to success means zeroing in on the ideas and processes that offer the greatest value and exploring how best to encourage creativity across your entire team.

Here’s how you can shift towards a management approach that fosters innovation:

 

Move away from hierarchical management structures

Although most of a company’s business knowledge required for innovation comes from non-management employees, says the Harvard Business Review (HBR) — many consider innovation outside of their remit. Others may be discouraged from participating in the process by cultural norms or organizational barriers like authority bias. As a result, allowing bottom-up innovation to thrive requires a move towards cultural flatness.

As McKinsey explains, flattening and unstructuring your company can unlock a great deal of long-term value. When you minimize management layers and ‘decentralize’ the innovation process, your company can gain  greater speed and agility to move at the pace of change.

As an example, Google takes a decentralized approach to innovation, where different product groups are encouraged to work independently of one another.

This approach will help you empower the front line of your organization to make decisions and enable those closest to customers, clients and products to have a voice and collaborate – allowing for more rapid innovation and effective decision-making.

long-term organizational success

Focus on offering value to the human experience via technological advances

Making moves to integrate more artificial intelligence (AI) into the workplace can help employees find better, more efficient ways of doing certain tasks, freeing them up to think more creatively.

As HBR notes, automating processes by using smart technology can make workplaces “more fulfilling and less exhausting” for employees. However, it’s important to note that employees should still be responsible  for tasks that require empathy and intuition.

Essentially, smart tech can take over the more mundane tasks, leading to a more manageable employee workload and reduced stress, allowing people to focus on other activities like problem solving and intuitive decision making.

For example, time-saving software, such as online collaboration or project management tools, can take basic processes out of employee hands and add valuable time to their schedules, so they can take on more innovative tasks.

innovation system

Develop a system to identify where innovations may arise

As an absolute necessity to the long-term growth and success of your business, innovation and potential innovation needs a metric. Just like sales and marketing initiatives, you need to know where you should be directing your attention – and your funding.

As CEO World magazine explains, while it is a creative process, innovation is also about discipline, so it can be measured – as long as your company is clear on what you mean by innovation. For example, is innovation something new and disruptive in your industry, or simply an improvement to your existing products or services?

Implementing a system to take stock of where innovation is happening in your business is not always easy, according to the Mack Institute for Innovation Management at Wharton. For example, while some companies look at financial metrics like percentage of sales from new products or revenue growth, it’s hard to link this data exclusively to certain innovations or processes.

Instead, consider process effectiveness metrics when measuring innovation, says the Mack Institute, such as the percent of projects that are major improvements, number of new products launched, average time to market, cost/investment and patenting activity.

 

If your company is ready to unlock the tremendous value of fostering innovation, you need to have a solid plan with concrete steps to analyze and support your company’s journey. That includes having the working capital you need to achieve your goals.

 

Need a reboot to your cash flow strategy to support your growth plans? Contact a Liquid Capital Funding Expert today to learn how our alternative funding solutions can help you be ready for anything.

 

Weather the recession with invoice factoring

Recession-proof your business and thrive during challenging times

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Recession-proof your business with these top tips.

Weather the recession with invoice factoring

In a recession, ensuring your business has enough working capital is not only key to continuing to meet your day-to-day obligations to employees, suppliers and customers – but it can also put you in a position to take advantage of opportunities to grow.

We recently explored why it’s crucial to find the right funding partner as recession looms – not only as lending standards are tightening at traditional financial institutions, but because alternative lenders often approach the funding process from a place of understanding, empathy, collaboration and responding quickly to challenges.

Ensuring your business is prepared for recession takes a multi-pronged approach – focused on your network, your cash flow and some strategic thinking. Here are ways to guard your company against the coming challenges:

 

1. Know where your cashflow stands

Whether you’re trying to meet biweekly payroll or looking to take advantage of an opportunity to scale your business, you need working capital to meet your obligations. But proceeding with confidence means knowing the state of your finances, so you’re clear on whether you’re on the right track or likely to face roadblocks in the near future.

Conducting a cash flow audit is an important step, as it allows you to take a closer look at your business’s working capital over a certain period. 

This will give you an updated picture of your businesses’ inflows and outflows and provide insight into any expected shortfalls before we head into recession, including whether you have more outstanding accounts receivables than you thought. If you do identify a gap, you then have the data in hand to take action to boost your cashflow, if necessary.

2. Cultivate relationships 

Along with working with the right funding partner, your focus on fostering strong relationships should also extend to your suppliers. Once a pattern of ordering and payment has been established over a number of months, you may be able to request extended or flexible payment terms, if needed. Some suppliers may also be willing to give you a lower rate on bulk orders or a discount if you pay your invoice on day 10 instead of day 90, for example. All of these measures will help keep your business cash flow positive.

3. Look for growth opportunities

When you’re feeling squeezed by inflationary pressures, it can be tempting to focus on putting out fires during recessionary times and instinctive to turn down chances to expand. But, as McKinsey explains, making it through tougher economic times like these means prioritizing growth – turning short-term challenges into opportunities. For example, taking advantage of new market share if or when it becomes available, launching or improving products or services to meet customers’ evolving needs can potentially pay off in a recession.

Take-a-longer-term-strategic-approach

4. Take a longer-term, strategic approach

In this environment, strategic thinking is one tool that will keep your business ahead of the curve – especially when it comes to anticipating challenges on the supply chain side or future price hikes in input costs.

Consider moving beyond a quarter-by quarter view to look at what’s happening to raw materials costs and take action to get ahead of potential increases. Recently, for example, one Liquid Capital client chose to take a longer-term view, purchasing raw materials with their invoice factoring capital – in this case, lumber – before inflationary pressures took hold. They were then able to resell the lumber to their clients using a peer-to-peer strategy at a markup that was lower than the market price.

Making strategic long-term investments, such as integrating more artificial intelligence (AI) technology into your business during this time can increase efficiency and help you come out of the recession with a competitive advantage.

5. Leverage invoice factoring to accelerate cash flow

Invoice factoring can play a part in a cost-savings strategy on the supply side – for example, when negotiating with your own suppliers for an early payment discount, using the cash you’ve received from factoring to pay your supplier can result in the supplier effectively paying for the cost of factoring.

Don’t just survive – thrive

Recession-proofing your business over the longer term can also involve working towards building a more resilient supply chain by reconfiguring supply networks, foregoing highly customized components in favour of easier to find inputs and lessening the risks of depending on only a few suppliers.

By strengthening your network, knowing where your accounts stand and thinking beyond the next quarter, you can bolster your business against the effects of a recession – and emerge from this period stronger, ready to take on your next business opportunity.

To learn more about how invoice factoring can help you or your client overcome the pressures of a recession, contact us today.

 

now-is-time-to-find-the-right-funding-partner

A recession is looming – now is time to find the right funding partner

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As business owners face a recession, the time has come to find the right funding partner to support them as they face new challenges and opportunities.

now-is-time-to-find-the-right-funding-partner

Just as companies are finally moving past the challenges the last few years brought, more economic woes are waiting in the wings. As interest rates rise in both the U.S. and Canada – with promises of further increases — and inflationary pressures persist, the threat of recession is now on the minds of almost every business leader and entrepreneur.

As one recent survey noted, nine out of 10 U.S. small business owners say economic trends such as inflation, supply chain issues and workforce challenges are having a negative effect on their businesses. Some 93% of U.S. businesses are also worried about the economy experiencing a recession in the next year.

Their worries may be well founded. According to the World Bank, the trend of central banks around the world raising interest rates simultaneously in response to inflation is likely to continue well into 2023, edging the world towards a recession.

For most sectors, rising rates, inflationary pressures and a looming recession are linked to a number of challenges. This includes pricing and contract-related concerns, higher borrowing and input costs along with supply chain slowdowns and staffing shortages. 

Businesses in industries heavily affected by fluctuations in cost, supply chain pressures and changes in business and consumer confidence are particularly vulnerable. According to data from the Canadian Association of Insolvency and Restructuring Professionals, this is most prevalent in the construction, transportation and warehousing sectors, with insolvencies increasing this year for many companies.

For many small and medium-sized companies, successfully navigating this part of the economic cycle will mean having the agility and availability of capital to pay employees and meet demand from customers.

With rising costs affecting inputs, even those experiencing high growth will need access to funding quickly to take advantage of opportunities in their market.

Recession-and-traditional-funding-challenges-go-hand-in-hand

Recession and traditional funding challenges go hand-in-hand

Unfortunately, just when cash flow is paramount, gaining access to it via traditional means has become more challenging as rising rates are causing banks to re-evaluate their lending risk.

In the second quarter of 2022, U.S. bank lenders began to tighten lending standards for commercial and industrial (C&I) loans to businesses of all sizes, according to the Federal Reserve’s Senior Loan Officer Opinion Survey. This tightening is expected to continue for the rest of 2022, as businesses are faced with an expected deterioration in debt-servicing capacity due to inflation, an expected deterioration in collateral values and an expected increase in the exposure to interest rate risk.

Finding an entrepreneurial partner

For many companies, the ability to thrive when a recession hits will mean having quick access to funding via a lender that looks beyond the data and takes the time to really understand your business.

In this climate, leveraging the close-knit relationship that develops between an alternative lender and small business will allow you to weather the cash flow challenges that a recession can bring. You’ll be prepared for working capital interruptions and – perhaps even more importantly – they’ll give you the tools required to take advantage of opportunities when they strike.

Looking at business through an entrepreneurial lens, established and partnership-oriented invoice factoring companies take a hands-on approach to client relationships. They take the time to dive deep into the data and seek to understand a company’s purpose and goals. 

They empathize with the financial and emotional impacts facing businesses during times like this, and are ready to discuss potential problems and solutions and aim to collaborate and grow with their clients.

Alternative-lenders-are-nimble-and-respond-quickly-to-challenges

Ultimately, with the unpredictability of the changes that can emerge during a recession, it is important that a lender also has the flexibility to pivot and react, provide predictability and transparency, and give business owners the tools they need to proceed with confidence.

Alternative lenders are nimble and respond quickly to challenges

At Liquid Capital, our clients are just a call or click away from a funding decision, following the initial underwriting process. This can be tremendously helpful in an economic environment where opportunities and challenges arise quickly, and often, unexpected.

It’s common for financial institutions to be slower at approving requests for funding. They can potentially be required to wait for a company’s fiscal year-end or the results of an audit before distributing funds. Operating on a quarter-by-quarter basis, traditional banks also often have little incentive to issue loans with a high cost of administration, especially in the current environment, and consider companies with exponential growth to be higher risk.

 

One small business recently had the opportunity to scale significantly after landing a large contract to sell their product with a major U.S. retailer. However, the fact that the contract would represent 85 percent of their sales was considered by a bank lender to be too concentrated.

The company instead pursued an invoice factoring solution. Liquid Capital built a relationship with the large retailer’s accounts payable team and was able to notify and verify the receivables. This allowed the client to access the financing to buy the inputs to meet the sales demand – eliminating the need for the company to consider other options, such as prematurely selling equity in the business.

 

At the centre of the alternative business lending philosophy is a simple concept: a company that is not traditionally bankable can still be a high-growth business.

Finding a funding partner who takes the time to understand your company is one way to guard against the impact of a recession. Keep reading for more tips on how you can prepare your business for the new economic reality.

Up next: Navigating unexpected supplier price increases