Small Business

Podcast 21 Transcript: Cash flow problems - and solutions

Written by Ian Portsmouth

Ian: Welcome to the Business Coach Podcast, an advice-oriented series that tackles the hot issues and opportunities facing Canada’s small businesses.  I’m your host, Ian Portsmouth, the Editor of PROFIT Magazine.  And we’ve developed this Podcast in cooperation with BMO Bank of Montreal. 

So what’s the fuel that keeps every company going?  Well it’s cash.  But as most business owners have experienced first hand, you can never count on having a steady and sufficient flow of cash into your business.  And with talk of economic troubles on the horizon, cash flow should be an increasing focus of entrepreneurs across Canada.  Now the best way to get out of cash crunches is to avoid them altogether.  But joining us to discuss some of the options available to entrepreneurs who do find themselves in a pinch is Mark Stacey, Senior Cash Management Specialist at BMO Bank of Montreal.  Mark, welcome to the Business Coach Podcast.

Mark: And thank you for the invitation.

Ian: Mark, what are some of the common external and internal factors that contribute to cash flow problems?

Mark: Ian, the first and foremost and it’s really somewhat systemic across all businesses and that is the imbalance between the cash in flows and the cash out flows.  What I mean by that is the collection process tends to be slow and the disbursements process tends to be prescribed.  The control of both processes is primarily in the hand of someone other than the business owners themselves. When we talk about internal factors, we tend to find that really one of the biggest things is having an organization that supports your business and putting in the structure that works for your company.

With my experience, the most successful companies are very disciplined and take a disciplined approach to speeding up the collection process and controlling the disbursement process and utilizing information reporting to make timely and educated working capital decisions.  For companies to set up themselves for success, the best thing they can do is put in place an organizational structure of products and services with their bank to support the company.  And managing the cash in flows and out flows will help reduce the currents of this cash crunch situation that a lot of companies can find themselves into from time to time.

Ian: Yes.  Let’s talk about the ways that you can expedite your receivables.  What are some of the things that the average small business owner should really have in place in order to make sure that they’re collecting in a timely fashion?

Mark: We approach receivables, I like to use the analogy of, if you want to sink a boat, you put a hole in it and if you want to sink a boat even faster, you put even more holes in it.  What I mean by that is that, the best way to speed up your receivables process is really to provide options to your customers that aren’t paying you.  That’s leveraging more non-traditional methods, of course when we speak of traditional, it’s cheques and cash in hand and that’s the way that the transaction is closed out.  But looking at alternate channels such the electronic means, wire payments, for someone that is receiving a lot of cheques and invoices situation, utilizing bank services such as a lock box which really is in essence an outright control of the collection process is done by the bank on your behalf.  So those are the sorts of things, again, it is providing options that are the best solutions and you would be surprised how many alternate, companies looking for ways to speed up receivables, companies are also trying to initiate ways to make more efficient disbursement processes.

Ian: Let’s talk about the “black art” I will call it of delaying payables, of stretching out your payables which essentially means that when somebody wants payment within 30 days, you make them wait for 45, is that strategically a good thing to do?

Mark: Extending your payables, Ian, can be beneficial for a cash flow and for cash flow purposes, but it really must be managed very carefully so that you don’t, you know, impact the relationship that you have with your supplier by delaying the payments.

Another tactic that a lot of clients are using and one that I sort of prescribe to is controlling disbursements.  And what I mean by that is, you know, the traditional method is cut a cheque, put it in the mail and wait for that to clear.  Well, that float time between the cutting that cheque and waiting for the cheque to clear, it’s really not a useful means of your cash.  So I rather then just do the traditional method is engage your clients, look at who is on those receivables left and engage them in conversations, and say I would like to pay you by alternate means, be it a wire payment for larger dollars, electronic payments, even a credit cards, as we’re seeing more clients getting into the corporate and purchasing cards means of payment.   What this allows to do is, now you are able to forecast when your disbursements are truly going to leave your account.  Armed with this knowledge, you’re able to make more informed decisioning on what to do with your surplus cash that is there today.  Do you invest it?  Do you use it to fund other elements of the business?  So by controlling your disbursements, you’re setting yourself up for success, again what is on the heals of both receivables and payables side, is always giving yourself the information reporting to make timely and educated decisions.

Ian: Now a lot of companies when they face a bit of a cash crunch will turn to factoring.  Can you tell us a bit about that is and when it’s an appropriate solution?

Mark: Facturing is a phenomenon that’s not widely used in Canada but is here and facturing really is the outright sale of your receivables to a factor which is a company who specializes in that field.  The sales of the receivables is done at a discount and certainly, for the ability to convert sales into cash quicker that facturing is a viable solution, especially where your traditional bank loans just aren’t applicable.

Ian: Now let’s talk about the bank.  I’m in a cash crunch, I want to call my bank and maybe get some money out of them.  What are they going to be able to do for me?

Mark: It’s a great question and I always answer that with this, have a conversation early and often with your commercial banking representative.  Understand your options for short-term financing, early on your company’s life will allow you to make appropriate business decisions from a credit prospective in the future.

Your BMO Bank of Montreal partners are here to support you in every phase of your company’s life, and will bring to the table solutions that are tailored to meet your needs.  So when customers find themselves in this position Ian, when short-term financing is required, your friendly neighborhood banker is there to work with you and take your call and work on setting up a financing that is appropriate.  And when we talk about what does it take to obtain credit, generally speaking, your commercial banker is going to want to see three years of accountant-prepared financial statements and a business plan for the next two to three years.  Again BMO treats all companies on an individual basis and information requirements will differ from client to client.

Ian: Now hopefully, most small business owners will have already provided those financials and the business plan to their banker, so they could be going to a bank during a cash crunch with cap in hand and maybe owing the bank an apology because, you know, to get in that situation they may have mismanaged something.  Are there any tips you can share on how a business that has been in a cash crunch despite having those plans and financials, can still obtain short-term financing?

Mark: You know, your banker is here to work with you through the good times and the bad times, they’re always there for you.  So when those cash crunch situations do occur, then we’ll work together to resolve and find solutions that will help you through this lean time.

Ian: Ok that’s great Mark.  Thank you for joining us today.

Mark: Well thank you for the invitation, my pleasure.

Ian: Mark Stacey is Senior Cash Management Specialist at BMO Bank of Montreal.

That’s it for another episode of the Business Coach Podcast.  You can download other installments in this series from, or iTunes.  As always, I’d love to hear your feedback and suggestions and you can send them to

Until next time, I am Ian Portsmouth, the Editor at the PROFIT Magazine, wishing you continued success.

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