Small Business

Podcast 47 Transcript: Finding Cash in Hard Times

Written by Ian Portsmouth

Welcome to the Business Coach Podcast, an advice-oriented series that tackles the top 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, most businesses are feeling the pinch of recession these days and that means they can’t always find the cash to support their business plans or simply to meet their various payment obligations.  Who can help them and what can they do to help themselves?  We’ll ask Larry Ginsberg, Larry is the president of GinsOrg International, a management consultancy based in Toronto.  In addition to running his full time consulting practice, he lectures at the Schulich School of Business in Toronto in strategic management, family businesses and entrepreneurship.  Larry, welcome to the Business Coach.

Larry:   Hi Ian, how are you?

Ian:   Good, thank you very much.  So what are some of the common causes of cash crunches during recessionary times?

Larry:   Well, the first is not clearly understanding what your bank’s expectations are.  In plain language, give your banker a hunk.  You need to understand what the bank is looking for, you need to understand what you are required to do and what their obligations are and what your obligations are.  You would be surprised how many people don’t know that.  The second cause of a crash crunch, believe it or not, is not knowing when to expect cash coming in and being surprised by what you have to pay out.  Many many people just simply don’t keep those sorts of efforts.  And they get surprised every time and suddenly they are up against the wall.  Third is all about understanding what your terms of sales are and compelling your customers to adhere to it.  So one example would be a consulting firm service business that waits until the end of an assignment to bill for the services and wait until the end of the month to send out a bill and so they are 45 days in arrears before they even start.  It’s for better to get half the fee up front and half billed on the final day of the assignment.  Many people don’t do that.  They just have a practice and that practice is convenient for them but it puts them behind the eightball anywhere from 15 to 20 days before they even start.  Another example would be having customers in arrears and not paying you.  And if they are not paying you, why are you shipping more goods?  You need to have a very strict policy that if they are not paying you within 30 or 31 days, you have to stop shipping.  The other point here also is that many people are not close enough to their customers to really be able to help them and to work with them like partners.  If you are close to your customers, you know there is a cash flow crunch coming from that customer, find a way to help them.  Perhaps you want to extend the credit to them and take a security interest in something.   That gives you an opportunity to collect if they go under.

Ian:   Let’s jump off from there into the whole idea of collecting payment, managing receivables.  Apart from demanding that people pay after 30 days, how can you encourage customers to pay faster?  One thing you mentioned earlier on was get them to pay for half the job up front.  What about things like discounts for paying up front, those kinds of things?

Larry:   Well, that’s great example.  I have a client who never gave discounts early payments, he switched to a 2% -10 offer and, you know, 20% of his clients start to take advantage of the 2% discount, which in this market place is a great interest rate for people to pay you early.  And suddenly, he was getting a lot more cash.  The other thing in terms of receivables management is trying to set things up so one, you invoice as soon as you ship something or as soon as you provide the service and your policy is 30 days payment from the day you ship.  And start charging them interest on the 31st day.  And the interest should be exorbitant, it should be very high, you need to check with your lawyer on that but it should be very high and strictly adhere to it.

Ian:   Do customers tend to react favorably to that interest payment?

Larry:   They don’t like to pay those high interest rates but they are using you as a bank when you’re not a licensed bank so why not charge them a much higher rate which forces them to go to the bank which will give them a much better rate.

Ian:   Now, on the other side of this equation is payables and a lot of businesses who are short on money will simply extend their payables after 30 days, they might stretch that to 40 or 60 days and keep their fingers crossed.  Is that generally a wise thing to do, I would presume there could be some negative repercussions?

Larry:   I generally don’t recommend it to my clients unless there is a particular situation.  For example, one of my clients had a very large order coming in that there were going to use for 3 months and they spoke to the supplier, made arrangements to pay them so much each month and the supplier was happy with that and they had an agreement no problems.  Always talk to your suppliers if you are going to stall them otherwise they’re going to be phoning you on the 31st day and just tying up staff time and   they will cut off your shipment to do a whole bunch of other things.  So first of all, talk to your suppliers number one, number two, in this market place, suppliers will be happy to offer you a 2% – 10 discount for early payment.  If you have cash or access to a bank line at a reasonable rate, that’s a bargain.  Not only do you improve your margin, but this supplier will love to service you.  The big risk is if you don’t pay your suppliers on time, when you need them, they won’t be there for you.  And suddenly, you are going to loose a lot more because you can’t service a customer and you are going to loose a big chunk of business.  The last point which is really important is many small business owners have a habit of postponing paying the government, that’s GST payments, PST payments, withholding taxes, those sorts of things, the Canada Revenue Agency is not user friendly when it comes to that stuff. 

Ian:   Let’s talk about the idea of inventory financing.  What is that and when is it helpful for businesses?

Larry:   Well, basically, inventory financing applies normally when you can have something with a serial number on it, normally when there is a large value item such as a used car, something along those lines where banks can come in and look at the vehicles, they have serial numbers, they know whether they are sold or whether they are not sold.  From most businesses, it’s very difficult to get inventory financing and that has to do with the Bankruptcy Act.  The change in the Bankruptcy Act about 10 years ago meant that suppliers who were shipping you goods within 30 days of you going under if they can identify the goods as being theirs, those goods are being returned to you which means the bank has no security.  So banks generally don’t like to finance inventory.  They may look at that as a secondary collateral but they generally will not look at it as a primary collateral and they are very reluctant to finance most inventories.

Ian:   There are specialized inventory financing suppliers out there, are not?

Larry:   Yes but, quite frankly most of them with the recent downturn in the markets and the leveraging of the market places really aren’t doing it anymore.  They are a few but very few, and very hard to get inventory financing.

Ian:   Now, an obvious place to find cash is simply by saving money.  What are some of the first places where companies should look to cut and on the other side, where should they resist the temptation to cut?

Larry:   Well, all companies have their favorite places to cut.  These usually include marketing, sales, advertising, training, travel, expenses, however, my view is that you have to be very careful about those cuts.  Because if you cut your marketing or your sales, what’s that costing you in revenue down the road.  And so, you’ve got to do that in a very very intentive way so if you are going to cut your marketing budget by half, how do you get the same marketing for half the dollars.  Those are things you have to look at.  In terms of cutting labor, which is what most people try to do, again, there is a huge training component in those businesses.  You might be better off to kind of butcher your labor force and try to do some sort of job sharing.  That way you got people who are trained when your business picks up, they are ready to come back full time and way you go.

Ian:   And definitely employees can play a role in tough times.

Larry:   Yes, and truly shocking how many owning managers or business owners don’t speak to their employees and just sort of ask them for suggestions as to how to improve revenue, how to be more efficient, those sorts of things.  Employees love to participate, they want to be helpful.  A quick example, a client of mine was in the business of making tires. They held a brown-bag lunch for their employees mentioned the fact that they are thinking of doing some international business.  At the end of that brown-bag lunch, one of the employees came up and said, have you ever thought about Chili and 10% of the revenue now comes from Chili.  We are a country of immigrants with connections all the way around the world.  Talk to your employees, you would be amazed what might come out of it.

Ian:   That’s great advice Larry and thanks for joining the Business Coach Podcast.

Larry:   My pleasure Ian, thanks for asking.

Ian:   Larry Ginsberg is the president of GinsOrg International, a management consultancy based in Toronto.

That’s’ it for another episode of the Business Coach Podcast.  Be sure to check out other episodes which you can download from, and iTunes.  If you have any comments or suggestions about the podcast, please send them to me at

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

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