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.

Financial Solutions for SMEs

Small and medium sized enterprises (SMEs) don’t have access to the kinds of bulk financial solutions that large enterprises can use. Instead, small businesses need more focused tools that can sub in for what might be an essential in-house function in a large corporation. Otherwise, you spend too much money on functionality designed to streamline efficiency that you often don't need. Here are five ways to save money and carry out business as if you had many more employees than you do.

1. Staffing Instead of Human Resources

Hiring employees can be a huge time investment. Often, if you don’t give this task enough attention, your whole business will suffer. So, it may seem like a human resources person, or whole department is a top priority. Not necessarily so. You can save money without sacrificing employee quality by using outside staffing solutions. Try a solution you can access on your smartphone, like GoodHire, to get started.

2. Invoice Financing Instead of Financing and Collections

Invoice financing is a two-part tool. First, you may not need to pursue traditional loans if you use invoice financing, because you'll get money from the invoice as soon as you issue it, so that you can fulfill the work with the benefit of having cash on hand. You don’t need the same credit rating or company history to take advantage of invoice financing as you may if you were approaching a bank for a loan instead.

The second problem that invoice financing can solve is the hassle of having a collections team, or of asking your receptionist (or other staff) to track down your payments. The factoring company will do the work of tracking down the payment on your behalf. With nonrecourse factoring you have even more security if the factoring company is unable to receive payment.

3. Hootsuite Instead of a Social Media Team

Having a diverse social media strategy is smart, because some platforms get more and less popular with different demographics overtime. However, you likely find that it would be too much work for your marketing team, or for you, to post to any more channels than you already have. Inactivity can be more harmful to a brand than just not having the account at all. Use Hootsuite to post to multiple accounts all at once, and schedule your posts for the future, so that you don’t have to interrupt every day with your posting schedule.

4. Loyverse Instead of Paid Point-of-Sale

Loyverse is a free option for companies without a point-of-sale solution and those that don't have the resources to dedicate to a loyalty program. This POS and inventory management software will show you basic sales analytics, making it a very useful software option for SMEs.

5. Telzio Instead of a Phone Network

Sometimes, even when you want to stay lean, you’re tempted to invest in business infrastructure, like a phone network. If you absolutely need one, try using Telzio instead. It allows you to set up a system over the Internet, which allows your team to take calls anywhere. It’s more flexible and suitable for the realities of modern business.

Whether you'd like to learn more, or you're ready to take the jump and reap the advantages of financial solutions like invoice financing and non-recourse factoring, reach out to us at J D Factors. Our experienced team is here to help SME's like yours.

5 Ways Factoring Can Reduce Your Operating Costs

We normally think of factoring as a way to fix cash flow problems. While that's true, factoring can also reduce your operating costs. Simply having consistent cash flow on hand and reducing the overhead you need to manage your accounts receivable can significantly lower your operating costs, making your business that much more efficient and profitable. Here are five ways that you can use factoring to reduce your operating costs: 

1. Outsource or Better Manage Staff

Do you currently use subcontractors to fulfill the larger orders you get? Do you have to lay off staff sometimes when your cash flow dries up? Factoring ensures a consistent cash flow, which allows you to manage your payroll or outsource some tasks to make your business more efficient.

Consistent cash flow may also mean that you can keep more, higher quality staff on hand. Creating a better work environment will enable your employees to give you their best, which can reduce overtime payments and the high one-time costs of hiring and training.

However, it can be even more cost-efficient to outsource specific tasks, including IT, accounting, and marketing, all of which can substantially decrease your operating costs. 

2. Buy Materials in Bulk

For some industries buying in bulk can be a huge savings. Suppliers can afford to give you significant discounts when you buy up more of their product, and this can even lead to a better working relationship with the supplier over time. You become a better customer, who gets more of their time and attention.

Unfortunately, not every business has the cash on-hand to buy in bulk, even when they know they’ll use all the material quickly. Invoice factoring can give you the cash boost you need to make better purchasing decisions, including getting those bulk discounts.

3. Buy Based on Subscription

Working with perishable goods? Those in food manufacturing and similar industries may not be able to buy in bulk because they won’t use all of the supplies in time. In this case, suppliers are more likely to work out discounts based on how consistently you purchase from them. Some suppliers have moved to subscription models; however, you may not be able to take advantage if you have an inconsistent cash flow. Invoice factoring can help. 

4. Accounts Receivable Management

When you use invoice factoring you do not need to manage sent invoices or chase clients to pay you. This can save a ton of time and money. Not having to remind clients about invoices and arrange for payment may mean that you can reduce your accountant or receptionist staff or freeing them up to maximize your business in other ways.

5. Save on Collections Agencies

There are some clients who just won’t pay, so you need to use collections agencies or other expensive measures to get your money from them. One great thing about non-recourse invoice factoring, is that you never have to worry about collecting from a client. If they don’t pay, your factoring company will do the work of taking them to court for you.

At J D Factors our team will work with you to create a plan to reduce your operating costs. Reach out today to learn more about how factoring can help your business.

Tips for Spring Cleaning Your Business' Finances

In light of COVID-19, your business may be feeling the financial stress experienced by most Canadians. Are your business' finances robust enough to hold you over until the quarantine is over? Whatever state your finances are in, now is a good time to do some financial spring cleaning. Revisit your business goals, plans and expenses to make your business more robust for this and future challenges. 

Revisit Your Long-Term Goals

Now that your short-term business has changed so dramatically, you may need to change your long-term goals. If you don't have any written down, now is a great time to start keeping a written record of the things you want to accomplish, whether it's a sales goal, creating a new website, or launching a new product.

Unfortunately, because of COVID-19, many of the long-term goals you've had for the year may need to be pushed back. And, because of the current uncertainty about when things will return to normal, you may have to leave your long-term goals on the backburner.

However, you can still learn a lot about what your next steps should be by re-prioritizing your goals and identifying those that you can accomplish in the short-term. Maybe a new product launch isn't your next best step. Perhaps reaching an online audience or starting to ship your goods is now your top priority.

Better Business Management

Have you invested in new digital tools to help you manage your business? These solutions aren't just limited to finances. Cloud-based tools may be as helpful for communicating with clients as they are for invoicing or communicating with your employees.

These solutions do not have to be expensive, either. There are now many free or open-source versions of some popular business management tools. Although, depending on your current finances, now might be a great time to check out paid options too. You have the time to really get to know new software and discover if it will fit your needs moving forward.

Consider Cash Flow

Many businesses are having cash flow problems now as their sources of revenue pause or dry up. If you were already having cash flow problems before the crisis began, you may have had even less time to prepare your business to survive than you would have otherwise.

You can better manage your cash flow moving forward with factoring, a type of financing where you are paid up-front for the invoices you create, even though you have not yet been paid by your client. This arrangement gives you the capital to buy materials, tools, pay employees, and handle your other business expenses.

The team at J D Factors specializes in non-recourse factoring and remains open for business for new and existing clients. We know that the current situation has put a lot of financial stress on companies, which is why our team remains open for business and ready to help you.  Our advanced automated systems will allow you access to quick cash in under 24-hours. Simply send us your invoices and any backup documentation such as time sheets, delivery slips, etc. by email and we will fund you with a direct deposit into your bank account.

Our non-recourse factoring program will allow you to continue to work for and bill your customers with peace of mind knowing you will not have any bad debt. This is a great way to minimize your risk in times of uncertainty. Give us a call today to learn more about how we can help your business survive the financial uncertainty caused by COVID-19.

Factoring and Taxes - What SMEs Need to Know

For small or mid-size business owners, tax season can be nothing short of a headache. On top of ensuring that business continues as usual through invoicing, payroll and other current daily operating expenses, there is the added stress of making sure that all of the previous year’s budgets, expenses and revenues are aligned and accounted for, and that everything is properly deducted and filed on time. There is also the risk of penalties – more money lost – if there are delays, which can be an even greater problem for small business owners.

To help ease the strain, here are some key tax tips for 2020 that every SME should keep in mind.

4 Tax Tips for 2020

Proper Bookkeeping

If 2019 wasn’t the best year for organizing and staying on top of company documentation, 2020 is the time to start. While many SMEs can afford a bookkeeper, those who can’t and must keep track of everything on their own should be even more mindful about proper documentation. This includes having receipts and other records properly sorted in physical folders with digital copies where possible - a good practice to carry forward as more processes are being conducted online regardless. Additionally, in the event that something happens to those print documents, keeping a separate backup can be critical come tax time.

Consulting a Professional Accountant

For small business owners especially, the guidance of an accountant or CPA is useful in sorting through and organizing documentation, expenses, tax credits and even potential deductions that may have been missed. This also includes advice on what the CRA will be looking for in the case of an audit and ensuring that all of the common expenses, such as vehicle, entertainment and meal expenses, are accurately accounted for. In some situations, tax preparation and accounting fees can also be considered tax-deductible.

Requesting an Extension

If time is an issue, filing a request for a tax extension can be a helpful step to avoid missing deadlines which can be even more costly in the long run. In the event that a deadline passes and a business must pay up on penalties, accounts receivable factoring can also be a key solution.

Factoring for SMEs

With invoice factoring and accounts receivable factoring, SMEs can get the money they need to balance outstanding invoices and cover tax costs to the CRA without putting a strain on daily cash flow. At J D Factors, we pay your invoices upfront, minus a nominal discount, then handle the risk, time and energy involved in collecting payment. This service allows SMEs to continue business operations without the worry of unstable cash flow or missed payments from clients.  

Contact J D Factors to learn more about protecting your business during tax season and get more tips for invoice factoring and accounts receivable financing.

Financial Solutions to Manage Your Cash Flow Better in 2020

Was 2019 a difficult year for keeping on top of your business bills and costs? As you reflect on last year’s business performance, you may feel that you need to plan for new cash flow solutions. Poor cash flow can cost you opportunities, customers, and even other business relationships such as sub-contractors. Commit to better cash flow in 2020 with these financial solutions.

Fine Tune Your Process

Having more cash on hand may be a simple matter of finding that cash in your process. Whether you are providing a service or creating a product (or both), you should review your process yearly. Are there cost savings to be found in streamlining your production, changing your services, or even your pricing structure? For example, subscription-based pricing gives businesses more consistent payments and therefore makes managing your cash flow simpler.

Change Your Vendor Relationship

It’s a wise idea to review your current vendor relationships and make sure you’re still working with vendors that make the most sense for your business. It’s not always wise to choose the cheapest, but you need to regularly review what else is out there in case there are more affordable options that may work out better in the end.

Once you’re sure you want to move forward with your vendors for 2020, you may consider putting some new effort into the vendor relationship. Do they have knowledge you can take advantage of, or ideas about how your business can become more efficient? Both can help you manage your cash flow better.

Reward Regular, Timely Payments

Once you’ve reflected on your vendors, reflect on your customers as well. It’s easier to manage your cash flow when you have customers who pay on time. You can encourage them to do so by rewarding timely payments with thank you notes, coupons and discounts.

You can also discourage late payments by changing your payment policies. The following can help:

• Send invoices immediately
• Follow-up on invoices before they are due
• Charge more interest on late payments
• Have customers who pay late make deposits upfront
  

Try Invoice Factoring 

Unfortunately, managing your customer’s payments and trying to discourage late payments can be costly, and so can trying to recover payments from clients who have outright refused to pay. This can quickly eat into your cash flow. A better solution is invoice factoring.

In order to start invoice factoring, you need to partner with a factoring company. Instead of sending your clients your invoice, you send them to the factoring company, who pays you the invoice amount immediately. Then, the factoring company sends the invoice to your client and does the hard work of getting a payment. This is very beneficial for managing cash flow as you get paid immediately, minus the factoring company’s fee.

Another type of accounts receivable factoring, called non-recourse factoring, may be an even better option for you. If your customer never pays the invoice, the factoring company does not ask for the initial amount they paid you. They take the loss, not you.

Reach out to J D Factors today to get a quote for invoice factoring and start 2020 off with better cash flow management.

How Accountants Can Use Factoring to Simplify Tax Season for Clients

Many small and medium-sized enterprises (SMEs) are first drawn to an accountant's services when they realize they have made a mistake on their taxes or are facing an audit. As an accountant, you bear the duty of telling your client the bad news, that they are in tax arrears. It’s only natural to want to help them out of this unfortunate situation.

When you’re helping these clients fix mistakes in their own accounting process and find ways to pay their back taxes, factoring may be a great option to help achieve a positive cash flow and assist with tax arrears. Here’s how:

Pay the CRA with Money Owed

Factoring allows SMEs to immediately convert their accounts receivable into cash and allows them to get the money they are owed immediately after sending out an invoice. This predictable, positive cash flow can give your clients the ability to pay their owed taxes right away, preventing them from incurring more penalties from the CRA.

If your client has had difficulty putting aside and remitting HST in the past, J D Factors can help. We can only hand over the gross amount of your client’s invoices, retaining the HST. Thus, your client never has the HST on hand and does not need to pay to maintain a separate account for it. This saves your clients time, money and hassle.

Of course, if we hold back your client’s HST we will remit it to the government on whichever schedule they prefer, or are mandated to use, whether yearly or quarterly. This saves your client the time and hassle of making these remittances themselves. They won’t have to wait at the bank and won’t have to worry about forgetting to remit.

Payroll and payroll taxes like the Canada Pension Plan (CPP) and Employment Insurance (EI) are other major hurdles for many SMEs. Those who struggle to keep a positive cash flow and who can’t make payroll will fail to retain their top talent. They will also struggle to remit CPP and EI on time. In fact, these non-remittances carry the highest penalties.

Why Should You Recommend Factoring?

Your business clients look to you as a financial guide, and the more potential solutions you have in your pocket, the more value you can offer them. Factoring is one option that your clients may not have heard of, and that can benefit your most vulnerable clients, those in tax arrears.

Factoring offers a win-win, benefiting you as an accountant, too. You won’t have to deal with calls from the CRA if your client fails to remit their HST or payroll taxes because J D Factors will be submitting these funds on time for them.

J D Factors is also dedicated to working with companies that are unable to gain traditional financing from a bank. We can help your client’s business stabilize again. If they recover from their financial troubles, they’ll be around for many years as your loyal client.

Reach out to us today to learn more about J D Factors and how factoring can help your clients.

Studies Show Cash Flow a Leading Cause of Business Failure

According to the Canada Business Network, businesses enter and exit the marketplace each year. For example, Statistics Canada’s Entrepreneurship Indicators Database showed that the “total number of SME births was 78,430, compared with 83,240 deaths, which resulted in a net decrease of 4,810 businesses.”

Mismanagement, a subpar location, poor timing, bad products or services, lack of experience or just plain old bad luck can all contribute to a business closing down, but perhaps the most common reason is insufficient capital as a result of negative cash flow. The Canada Business Network provides a number of survival tips, suggesting that owners of SMEs “understand your business finances, such as cash flow and handling credit” to remain afloat.

What is cash flow?

Cash flow refers to the movement of funds into your business (in the form of revenue, investment or other sources), and the movement of funds out of your business (in the form of payments, bills, salary and other expenses). Cash flow is the lifeblood of your business and is necessary in order to keep everything moving smoothly and working properly. Without cash flow your business will not be able to support itself.

Positive and negative cash flow

When you have more money going into your business than going out of your business you have positive cash flow, when the reverse is true (i.e. that you have more money going out than coming in) you have negative cash flow.

Know your flow

Cash flow seems like a simple concept, yet it is one of the most common factors behind failed businesses. Even the best product, location, knowledge base, and sales team can’t save your business if your negative cash flow leads to insufficient capital.

Cash flow is more complex than just money in minus money out. You need to have a grasp of exactly where that money is coming from, where it is being spent, and just as importantly when.  Your company can have a net profit but a net negative cash flow for a given time period. For example, if you bought $100,000 of inventory, sold that inventory for $200,000 but have not yet received the payment you may have a $100,000 profit on paper, but a net negative cash flow of $100,000.

Even though your sales team may have done a tremendous job to sell $100,000 of inventory for $200,000 you might not be able buy more inventory for them to sell (or even pay them their salary) until you actually get paid!

Simple tips to help you get a handle on your cash flow

Getting to grips with your cash flow is vital to operating and growing your business. If you want to keep your business running smoothly and well poised for the future, follow these simple cash flow tips:

• Profits are not cash: You can’t pay suppliers or employees with profits, you need cold hard cash.

• Growth requires cash: Growing your business uses cash, which reduces your cash flow. If you want to grow you need to increase your cash flow.

• Don’t do it yourself: Making sense of your cash flow isn’t as simple as adding up cash in versus cash out. You need to ensure you know where and when that cash is going.  Don’t be afraid to call in professional help.

• Working capital is key: Working capital is the cash you have available to bridge the gap between making a sale and actually getting paid. Depending on your business this gap can be days, weeks or months.

At J D Factors our team specializes in helping small to medium sized businesses meet their ever-increasing cash flow demands so they can run their businesses successfully. Factoring, the process of turning your accounts receivable into cash, gives your company immediate access to working capital for things such as payroll, marketing, paying vendors, and purchasing equipment and inventory, without incurring debt. Contact me today for more information.

Are you paying enough attention to your cash flow?

Cash flow is the amount of money coming into a business minus the amount of money going out. It is a deceptively simple concept that is far too often overlooked by small to medium sized businesses.

Cash flow is the blood that circulates throughout your company, it delivers oxygen to the extremities and keeps the heart pumping. Money comes in from investors, sales, and other sources and flows out when buying inventory, paying staff, and taking care of other business expenses. Without a consistent cash inflow, the cash outflow inevitably drains the company over time.

Cash flow is integral to determining the net present value of a company. Calculating weekly cash flow can be used to predict future cash flow from which the overall value of the company can be extrapolated. Using this model, businesses can make long term strategic decisions, as well as short term corrections.

Cash flow determines value

When cash outflow is greater than cash inflow, then the value of the company decreases. When cash inflow is high relative to outflow, then the business is worth more. Increasing future cash flow is integral to building the value of any business long term, but there are also important short term applications including:

• Servicing creditors
• Paying shareholders
• Informing bonus structures
• Reinvesting into the business itself.

Perils of ignoring cash flow

Despite the uses and benefits of a net positive cash flow, the concept is not applied across the board. In the late 1990s, many tech companies eschewed the net positive cash flow model, relying instead on investors who were all too happy to jump on the tech bandwagon. When the bubble burst the companies went under and pulled their investors with them. Webvan, a food delivery company is endemic of the tech industry’s problematic cash-adverse philosophy. According to Bloomberg “in 2001, Webvan drove off a cliff into Chapter 11 only 18 months after its IPO, due to rapidly disappearing cash reserves.”

Optimal cash flow

A low or negative cash flow current ratio is bad, but so too can be a very high cash flow. Money flowing into a business in large quantities with minimal expenditure means that there may be a lack of investment in the company itself. Exactly how much of your cash flow you should reinvest in your business is up for debate. According to Entrepreneur, some experts suggest that small businesses reinvest as much as 50% of their positive cash flow.

Underinvestment is as dangerous as over expenditure because it means that the company is stagnating. Increasing cash inflow allows businesses to make crucial investments which grow their business overtime, increasing future cash inflow. 

For small to medium enterprises (SMEs), maintaining optimal cash flow is critical to success. According to financial technology experts Daily Fintech “A survey of 1000 British SMEs, conducted by invoice finance provider Hitachi Capital, found that improving cash flow was key to unlocking growth.” In fact, the survey showed that cash flow was so important to these SMEs that “each quarter it was included as a top three consideration for business owners, alongside reducing overheads and market expansion.”

When cash flow is overlooked

Cash flow is one of the most important, and undervalued aspects of a business. It determines current and future value, and dictates reinvestment back into the company. Striking the right cash flow ratio is vital to success now, and in the future.

Steps to take to optimize working cash flow:

• Asses your current cash flow by calculating expense versus cash inflow. You will have to make some judgement calls, but remember it is better to be more conservative and underestimate cash inflow, than to find yourself short of working capital later on due to a faulty model. Different businesses calculate their cash inflow in different ways. The Wall Street Journal reports that Procter & Gamble refer to cash flow as “free cash flows”, and PespiCo calculates “management operating cash flows”
• Focus on cash inflow and reducing long term debt during challenging times
• Reinvest your net positive cash flow into expanding your business or making it more competitive
• Create internal processes for striking the right balance between net positive cash inflow and reinvestment. Many businesses set aside a certain percentage of revenue to pursue future initiatives. This may mean prioritizing growth over profits, bonuses, or other non-core expenditures.

At JD Factors we specialize in helping businesses get a handle on their cash flow. Contact me today for help solving your cash flow issues and for financially viable options to reinvest in your business.