Negotiating Terms? Avoid These 4 Common Mistakes

The biggest mistake a small business owner can make when they are working with a bank is to think that the terms the bank presents are non-negotiable. The truth is that you can and should ask for a better interest rate or other more favorable credit terms. However, small business owners who are not used to negotiating these important financial arrangements often make mistakes. 

Here are the common mistakes you need to avoid in order to get the best terms when negotiating credit with a bank.  

1. Avoid Being Intimidated 

It can feel daunting to negotiate with such a large organization, and one that has so much power over the future of your business. But remember that there is more than one bank out there and the others want your business too. There is no reason to be intimidated by the bank or the people you speak to there. The person negotiating for the bank is not all-powerful and is a person, just like you.

2. Do Your Homework

Why do you deserve better terms? Just wanting them will not be a compelling enough reason. You should demonstrate the reasons that your business is more likely than average to pay back your loans or to be a good customer to the bank over the long term. Arrive to the meeting aware of all the information that may be important to bring up. Discuss your credit rating, the future prospects of your business, or the kind of investment you’re making with the credit the bank is offering you, if any of those facts would be compelling.

Whatever your argument, preparing it ahead of time will give you the opportunity to pull the numbers and make it more appealing to the bank’s representative. 

3. Listen to Build Trust

The bank will have its own reasons that the initial terms they offered you are acceptable. By listening to the representative’s counter arguments and perspective you gain valuable insight about which terms the bank might be more open to negotiating and what they would need to see in order to offer you better terms where they currently cannot.

Perhaps the bank is inflexible on the interest rate, but more flexible on monthly payments or overall credit amount. By listening you can find opportunities. You’ll also build more trust with the bank’s representative, who will realize that you understand their perspective and will therefore be more willing to work with you.

4. Know What's Good Enough

It’s rare in any negotiation to get precisely what you ask for. You’ll walk into the negotiation knowing what you want, but you should also know where to settle. What terms would be good enough to get your business the credit it needs? When you know the bare minimum you’d be willing to accept you will know when you should walk away and pursue other options.  

If the negotiation doesn't go well, keep in mind that you have other financial options available to your business. Invoicing factoring is a great option, particularly if your negotiations with the bank don’t fare well. Reach out to J D Factors to learn more about this alternative option.

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.

 

 

 

Negotiating Better Credit Terms

As a small or medium sized business, you deal with credit all of the time. You get credit from your bank and you may offer credit to your customers. In both instances you will benefit financially with better credit terms. Credit from your bank can end up costing a lot. Extending too much credit to your customers can cost you, too. Here are six tips for SMEs to negotiate better credit terms. 

Negotiate with your Bank

Negotiating interest rates and other terms with a bank can be challenging. In fact, many businesses do not attempt to negotiate with banks at all. You may be surprised to learn businesses have a little more wiggle room than consumers when it comes to accepting a bank's terms. Here’s how to better negotiate:

• Understand your situation: You must negotiate with reference to your credit score, your finances, and your projected future. These are the areas that your bank is most interested in.
• Start early: If you’re negotiating terms on an existing credit product, start talking to the bank as soon as possible. On new products, try to negotiate well before you need to use the credit, so you have more time to come to an agreement. 
• Know your options: If you feel like you don’t have any other options, you might agree to terms that aren’t favorable. Understand your bank’s range of credit options and ask about them. Know that you can go to other banks and financial institutions, too. 

Negotiate with your Customers 

When you offer customers an invoice and are delayed payment, you are essentially extending them credit. You may also extend credit to customers with a monthly payment plan for your products or services. In either case, negotiating more favorable terms will result in better cash flow. How do you negotiate successfully, especially if favorable terms mean working against industry standards? Here are some tips:

• Set expectations early: Afraid of losing business by asking for unusual credit terms upfront? Most customers won’t walk and will negotiate when you ask for unusual terms. It’s easier to negotiate when the customer isn’t used to your existing arrangement, so ask for better terms up front. 
• Offer services: There are many services you may be able to offer that cost you nothing, but which matter to your customer. Offer these services in exchange for better credit terms. For example, offer 24/7 customer service, better processing times, or free shipping for invoices paid up front. 
• Offer a discount: If you can afford to, then consider offering a small discount (two percent) for clients who pay their invoices very quickly (within five days). Having invoices paid quickly is an important step to securing better cash flow for your business. 

If your discussions of new credit terms don't generate a lot of interest amongst your customers, then consider using other tools to improve your cash flow. Invoice factoring is one strong option. Your invoices are paid upfront, and the factoring company worries about collecting on those payments from your clients. The result is an improved cash flow and more time to focus on your business. 

Call the team at J D Factors to learn more about the benefits of factoring and for tips and advice when it comes to negotiating better credit.

How to Manage Your Business’ Hypergrowth

Hypergrowth is both exciting and scary. If you’re experiencing hypergrowth you’re making more sales, more deals and, ideally, more money. However, you’re also experiencing more risk. There’s a possibility to get ahead of yourself and put too much strain on your employees and your cash flow. 

Those who can manage hypergrowth can make the most of this exciting process. If you can’t manage it, you may not experience the increase in revenue you should, and you could even destroy the business. So, how do you take hypergrowth by the horns? Here’s our advice.

Funding Hypergrowth

Adequately funding hypergrowth is critical because managing your cash flow is potentially the most important factor for your business’ success. You suddenly have a ton of new customers. How do you fulfill their orders when your cash flow is limited to your previous size? There are a few solutions:

1. Factoring

The first option is invoice factoring. This is where you hand your new invoices over to a factoring company, which pays you for them immediately. They give you the cash you need to fulfill that order, without having to wait for the customer to pay you. Your cash flow can expand as much as you need it, and only as much as you need it.

2. Loans

Loans are another option. You can get a traditional bank loan, but this is typically inflexible and very time consuming. Are you asking for too much? Then you may have trouble paying the loan back without cutting into profit. Are you asking for too little? Then you may not be able to take full advantage of your hypergrowth.

3. Investors

Start-ups that are experiencing hypergrowth typically look for investors. It’s great if you can find an investor who will back your orders. However, it’s rare. Invoice factoring is a more reliable funding source that can help you mitigate the risk of hypergrowth.

Guiding Your Culture

Other challenges you may face during hypergrowth come from your staff and business culture. One common problem for established companies experiencing B2B or B2C hypergrowth is that the staff are reluctant to change. It may take a lot of work to get staff up to date with new procedures, but also to change their mindset. When possible, replacing key staff, especially those who are responsible for the teams that need to change the most, is a good idea.

Hire Carefully

You may be onboarding new staff not just to replace current staff, but to grow. One big mistake you may make is getting ahead of yourself too quickly. You can’t be sure how long hypergrowth will last, or where you’ll be when it’s over. So, don’t hire based on some future projected size.

If you hire a former CTO of a massive company, but you’re currently 100 people strong, their skills may not translate well to your environment. You’re hobbling yourself, not fulfilling a future need. 
Instead, hire flexible, motivated people who have experience with the current size your business is at. Always keep in mind their ability to grow, as your business grows.

Choose J D Factors 

J D Factors can help you fund hypergrowth and expand your cash flow as you need it, without getting ahead of yourself. Reach out to us today to learn more.