How to Prepare Your Business for the Second Lockdown

 

As Ontario faces another lockdown on Boxing Day, businesses have a short period of time to prepare for the financial health of their operations and for the wellbeing of employees. While the lockdown is certainly going to be financially taxing on many SME's, the silver lining is that this is not the first time businesses have been through the challenges of either closing completely or operating with restrictions in place. 

If you haven't already, now is the time to lean on your experience over the last year to ensure that you are as prepared as possible for the second lockdown. Here are five tips to help you do just that:

1. Look back at your response to the first lockdown

A successful business is introspective. It's important to look at what went well, and what didn't during the first lockdown and make changes accordingly this time around. Keep in mind that what went well from your perspective may differ from others. Take the time to talk to your employees, partners, suppliers, vendors, and customers to talk about what worked and what you should do differently.

2. Expect and anticipate shipping delays

There have been more shipping delays than usual this time of year because of increased online holiday orders as consumers bunker down and stay home. That may mean that essential business goods or shipments out to customers are taking longer to arrive.

Be patient and remember that essential workers in the shipping and trucking industries are working harder and putting in extra shifts and long days. Despite their efforts many companies are still struggling to keep up with demand and make deliveries on time.

From delivering essential food items to the COVID-19 vaccine, those in the trucking and freight industries are giving up time with their own families and putting themselves at risk. This essential and thankless job is keeping Canadians fed, comfortable and secure and allowing business in Canada to continue. The best way to deal with these delays is to know the reality of the situation and place orders well in advance of when you need them.

3. Identify bottlenecks

Procuring and delivering goods may be one bottleneck to deal with during lockdown, but are there others? Common bottlenecks that can put your business at risk include staffing and cash flow.

Are you ready to cover shifts of employees who may be unable to come to work because they've got symptoms or are waiting for a COVID test result? Have a plan in place and trained staff on standby just in case.

4. Get Your Finances in Order

Many businesses across the country have been relying on government subsidies and programs to continue to operate. That may help you get through the lockdown, but it's not a long-term strategy. For businesses with reduced hours (or those who will be closed), take advantage of the time afforded you and get your finances in order. In an article for the Chartered Professional Accountants of Canada, business consultant Eitan Dehtiar suggests that businesses "look at an overall cost reduction plan, trying to transition as many fixed costs as you can to variable costs so that you have the ability to turn off the tap and adjust."

In addition to reducing costs, advice from EY (formally Ernst & Young) includes evaluating short-term liquidity and closely monitoring cash flow to stay on top of potential shortfalls.

5. Remember, Cash is Always King

Cash flow is always critical to the health of a business, but even when business is good, if customers don't pay what's owed, things can go sideways. Even businesses that have never missed a payment with their bank, like Carl Gatt, owner of BLB Transport Group, may be denied credit when it's needed.

Earlier this month, FreightWaves interviewed Gatt, who shut his trucking business down after a financing dispute with his lender, RBC Bank. Gatt, who is planning on retiring, ended up paying his drivers from his own personal savings after his business accounts were shut down as the dispute went to court.

Luckily for Gatt's drivers, RBC Bank and the courts agreed that he could sell his business to Ready Go, who agreed to buy the company's assets and hire most of Gatt's employees. "When I met Carl, I saw how much he cared about his employees," Ready Go owner and General Manager Ajay Virk told FreightWaves, adding that "we didn't want to see these guys losing their jobs."

While Gatt's story ended on a somewhat happy note, this isn't always the case. Now, more than ever, it's important to get a hold of your cash flow, ensure your accounts receivable are up-to-date, and have a plan should any government programs or subsidies you're using disappear.

Relying on your bank for credit is risky. Instead, consider invoice factoring as a safer way to ensure your expenses are covered. With invoice factoring you'll get paid instantly for your invoices so you can pay your employees and cover expenses. Give the team at J D Factors a call to learn more. Our contactless process means we're able to help your company get control of your cash flow, even during the lockdown.

 

 

 

Never Have to Write Off Bad Debt Again

When a client of yours is unable to pay you, you simply have to take the hit. You can write off bad debt, but you can’t recover the strain on cash flow you’ve been suffering, and you can’t get back the time you spent trying to recuperate the debt. In fact, bad debt hurts companies in both B2B and B2C industries more than you might anticipate. 

The Negative Effects of Bad Debt

Typically, you will complete a quote or project for a client well before you realize they won’t be paying you. The result is a reduced cash flow that doesn’t just affect the un-paid project, but also your projects with other, more stable customers.

How does reduced cash flow from a delinquent client negatively impact customers with whom you have a strong relationship? Reduced cash flow means you run the risk of not being able to quickly fulfil customer’s orders and it can prevent you from expanding your business, buying new equipment, or taking advantage of opportunities for growth. Writing off bad debt can cause you to lose a hundred little opportunities.

One bankruptcy can ripple throughout a whole industry. The bankruptcy of Target Canada Co. left more than 1,700 companies with bad debt, ranging from a few thousand dollars to a few million. Any amount of bad debt can threaten a company’s future success, and all of these companies will have to handle this shortfall somehow.

Five Tips to Avoid Bad Debt

It’s best not to let yourself get into this situation in the first place. Here are our best business accounting tips to avoid bad debt:

1. Use Credit Checks

You can avoid a landmine of bad clients by checking their credit. Even if you do want to take on clients with less than stellar records of payment, when you use credit checks you’ll understand what kind of risk you’re taking on. When you work with J D Factors you receive complimentary client credit checks.

2. Send Invoices and Follow-Up Aggressively

Even a few extra days of non-payment can affect your business, so you need to send invoices right away to get the ball rolling. What about following up? Don’t be aggressive in tone, of course, but following up on missed payments is important to keep the pressure on clients and be sure you’re at the top of their payment list.

3. Penalize Late Payments

Think about it, if a client has more than one outstanding invoice, they’ll pay whichever one is costing them the most first. That’s why it’s important to charge interest on outstanding payments.

4. Hire a Collection Agency

How do you chase after bad debts without taking up too much of your staff’s time? It can be more effective to use a collection agency whose staff have the training to get payments faster. Even better, use a factoring service like J D Factors and the invoicing and debt collection becomes our job.

5. Use Non-Recourse Invoice Factoring

Non-recourse factoring protects you from ever having to write off bed debt. The factoring company pays your invoice right away and takes on the risk that your client may not pay if their business goes under. At J D Factors we will not ask for your money back if your client never pays us due to bankruptcy. You significantly reduce your risk, and don’t have to waste time and resources chasing after payments. Give us a call today to learn more about factoring.

Bankruptcies are on the Rise: What Does it Mean for Your Credit?

In 2019, Canadians have seen an increased bankruptcy rate. More Canadians are facing insolvency than ever. Roughly 15 percent of income earned by Canadians goes towards debt payment. According to Loans Canada, the reasons for this high level of bankruptcy may include high cost of living, social pressure for spending, and missing payments. If you’re considering bankruptcy you may want to first know how it affects your credit, and what other options are available to you. 

How Bankruptcy Impacts Your Credit

Bankruptcy does significantly lower your credit score. As a result, you may be unable to get a car loan, mortgage, or business loan while the record of your bankruptcy impacts your credit rating.

How long will that be? A bankruptcy remains on your credit report for six years from the date of your discharge. It takes about nine months to get to the discharge phase, so the total is almost seven years. If this is your second bankruptcy it will remain on your credit report for 14 years.

This doesn’t mean you can’t get any credit products during this time. In fact, it is important to get a starter credit card and develop good habits with it. Doing so can help you rebuild your credit. Anyone who has declared bankruptcy should seek professional help about how best to rebuild their credit, so they can avoid a second bankruptcy.

Businesses can also declare bankruptcy. If you’re a sole proprietor this process is no different than filing for personal bankruptcy. If you own an incorporated business, it can go bankrupt without impacting your personal credit. However, you may need to sell the assets of the business in the insolvency process.

Pre-Bankruptcy Options for Businesses

As it has long-term effects on your credit and other costs, it’s best to avoid bankruptcy whenever possible. Depending on your businesses’ situation, one of these options may help you recover financially instead:

Debt counselling can help your business develop a plan to recover from your debt before you’re forced to declare bankruptcy. Professional guidance can show you how you need to change your specific financial habits to get your debt under control.

That professional may also suggest a debt consolidation loan. This kind of loan combines all your debt sources into one, even dropping the interest rate down on some of the debts. Paying only a single payment and collecting less interest will help you recover from the debt.

Sometimes your situation warrants a Business Proposal instead. This is an offer you develop with a licensed insolvency trustee that helps you recover financially, often focusing on consolidating your debt and lowering the interest rate.

If you’re a business owner, you have other tools that can help you get back on track. Invoice factoring is one option. It gives you a healthier cash flow, so that you can make debt payments more regularly. 

As an owner of an incorporated business you may be able to combine factoring with other pre-bankruptcy options. Call J D Factors today to find out of invoice factoring is an option for your business.

How to Reduce the Risk of Your Accounts Receivable

There’s always some risk to your accounts receivable. You’ve performed the work and sent your invoice, but will they pay you? Not always.  

Depending on the size of your contracts and how often your clients fail to pay, your business could face some serious liabilities. Some businesses even declare bankruptcy after taking on a string of bad clients.

There are ways to reduce the risk of your accounts receivable. Business owners may turn to accounts receivable insurance or non-recourse factoring to find compensation for those clients who can’t pay. Which option is better for you?

Accounts Receivable Insurance

For a premium, accounts receivable insurance offers you protection from damages you incur from unpaid invoices. If you have to hire a collection service your insurance policy may cover the cost. Or, if you have to take out a loan in order to make up the gap for an unpaid invoice, your policy may cover the interest on the loan. This insurance is also useful if a disaster or technological failure has caused you to lose track of your account receivable records causing you to be unable to collect.

Just like other insurance policies, your accounts receivable insurance will have a policy limit. If you have large invoices you may need to pay high premiums in order to get them covered. Further, your premium rates will go up if you need to use the insurance. There’s also the chance that the insurance company will find a reason to deny your claim.

Non-Recourse Factoring

Non-recourse factoring, on the other hand offers more benefits and less risks. How does factoring work? You send your invoices to the factoring company and they send you the cash, minus their fee. At J D Factors we send you the cash owed you within 24 hours. With us, you have your money without worrying about hiring a collections company or taking out a loan to cover your losses.

You’re paid, but what about your clients? The factoring company collects from your clients directly. With non-recourse factoring, if your client never pays because of a credit issue such a bankruptcy, the factoring company takes the loss for you. That’s much more convenient and easier to plan around than trying to make an insurance claim only after your client has refused to pay.

For this reason, non-recourse factoring helps businesses keep a healthy cash flow and a more flexible business model that is able to invest or expand when needed.

Benefits to Insurance Brokers

If you’re an insurance broker, why would you mention non-recourse factoring to your clients? Not all of the contacts you have will end up choosing accounts receivable insurance. However, you can still make money on these contacts for whom accounts receivable insurance isn’t a good fit. Simply refer them to J D Factors for non-recourse factoring. We’ll give you a referral fee. Plus, if you can offer your clients the solutions their business needs, you’ll earn their trust, they’ll stay with you for all their insurance needs, and they’ll refer you to their peers. Talk about a win-win-win!

Contact J D Factors today to learn how to reduce the risk of your account receivables with non-recourse factoring for yourself or a client.

4 Invoice Factoring Mistakes to Avoid at All Costs

Invoice factoring can be a useful tool to keep your cash flow healthy and your business growing. It’s often your best alternative to a bank loan or line of credit. However, invoice factoring isn’t something you want to jump into without fully examining how it will work for your business. Here are four invoice factoring mistakes you should avoid at all costs.

Mistake #1: Choosing Recourse Factoring When You Want Non-Recourse Factoring

Have you decided that factoring is best for you because you’re finding it challenging to collect from clients who are chronically late? Or, have you grown so fast that money is out the door before you get paid for previously completed projects? There is always a risk that some of your clients cannot pay, whether because of poor cash flow of their own or even bankruptcy. If so, who is responsible for the bad debt?

In recourse factoring, you’re responsible for bad debt regardless of the reason for nonpayment and you have to pay your factoring company back for the full invoice amount and any fees your customer refuses or can’t pay.

However, if you chose non-recourse factoring, the factoring company takes the hit if the reason for nonpayment is a credit issue, such as bankruptcy or if they’ve closed their doors, moved away, or have poor cash flow themselves.

Generally speaking, recourse factoring is best for companies who know and trust their customers, while non-recourse factoring is best for those who are new to the business and are looking to grow. However, choosing the right type of factoring for your business is not quite so cut and dry.

There are several myths out there about recourse versus non-recourse factoring which cause confusion, and it’s important to understand the differences between recourse and non-recourse factoring before making a decision about what’s best for you.

Some people think that with non-recourse factoring you’ll get lower advance rates or that it’s harder to qualify which is simply not true. Also, some people dismiss non-recourse factoring thinking that it’s unaffordable. While non-recourse factoring can be slightly more expensive because you’re paying for the additional protection, at
J D Factors we offer very competitive rates for non-recourse factoring.

Considering these facts, for most businesses, especially B2B companies, it makes sense to mitigate your risk of bad debt with non-recourse factoring, which provides peace of mind that you will be paid and able to pay your own obligations.

Mistake #2: Making a Price-Based Decision

A common mistake people make is choosing a factoring company based on price alone. It’s important that the factoring company knows and has experience in your industry. As well, ensure that they understand your needs, are flexible and have a simple termination policy. As you can see, when it comes to choosing a factoring company there’s a lot more to consider than price alone.

Mistake #3: Misunderstanding the Fees of Your Factoring Agreement

Factoring companies make money by taking an agreed upon percentage of each of your invoices. There may also be charges for other services you ask for. It’s important to understand how much these fees are. J D Factors stands alone with fully transparent pricing, with no hidden fees.

A factoring company may, for example, charge their fee on each invoice you send them, by only advancing a certain percentage of the invoice It’s best to understand the fees and schedules before you sign up.

Mistake 4: Accepting Payments from Clients Instead of Re-Directing

It’s important to ensure that your transfer to factoring is complete. You don’t want to be receiving money from your factoring company and your client, as you’ll end up paying much more or even losing your reserve amount. Instead send your customer’s payments to your factoring company immediately.

Or, partner with a factoring company like J D Factors that does all of the legwork for you and direct your customers right to them for payment. It is important for the lines of communication to always be open between you, your customer, and your factoring company. It may take a bit of time for your customers to adjust to this, but once they do it will be smooth sailing.

J D Factors is dedicated to helping you avoid the common pitfalls of switching over to factoring. We have experience guiding companies and their clients with our exceptional customer service and custom solutions. Reach out to us today to learn more.