Money for mega-contracts

Jill Anderson knows first-hand just how dangerous — and potentially fatal — a cash-flow crunch can be. Her firm, Aecometric Corp., which makes custom burners and other heavy industrial equipment, almost went broke during an economic slump that brought large-scale construction projects to a halt and dried up its order book. When clients started taking longer to pay, Aecometric (No. 73 on the 2008 PROFIT 100) missed payroll three consecutive times.

Amid the crushing stress of that early-1980s recession, Anderson’s husband Larry, who had been running the business, had a stroke. Jill took over, and has run the Richmond Hill, Ont.-based firm as its president ever since. To keep it afloat, she slashed its workforce from 22 to six and remortgaged the family farm. And she became ruthless about managing cash flow.

Today, Aecometric is thriving. Sales are up 820% over five years, to $22.8 million in 2007, and the run-up in energy prices has put its fuel-efficient designs in a sweet spot. But Anderson is still the cash-flow hawk the recession taught her to be: “I won’t take on a job unless I can see I have the cash to get from A to B and make payroll.” Her grasp of the importance of managing cash flow led her to a federal program that other entrepreneurs would do well to consider. The program lets Aecometric stay liquid while it’s waiting to get paid — and allows it to bid on much bigger projects than it could otherwise afford.

Keeping the cash flowing isn’t easy when your clients typically wait at least six months to pay all but a thin slice of the bill. “We’re lucky if we get 10% to 15% when we finish the [blueprints], and the rest is on an offer to ship,” says Anderson. Having to finance the vast majority of its jobs was an effective cap on Aecometric’s growth: “I had to turn down a $1-million contract because it would have taken six months and we wouldn’t have gotten most of that money until the end.”

The solution — appropriately for a firm that derives 95% of its revenue from exports — came in the form of bridge financing from Export Development Canada. For a specific export contract, EDC will provide the company’s lender with a loan guarantee for up to 75% of the firm’s costs for the project, including materials and labour. The program, which Aecometric has used for 12 years, is similar to a line of credit, but the cost is nominal. “I generally put 1% on my contracts to cover off the financing,” says Anderson. “When our receivables come in, the bank takes that amount off and we get the rest.”

The EDC itself admits that the Export Guarantee Program is “largely untapped.” That’s a shame, because it offers companies a way to take on massive projects that would otherwise be too expensive for them to carry. Thanks to the program, Aecometric was able to land a $3-million project two years ago and two $1-million-plus contracts in 2007. And last year, Anderson paid off the mortgage on the family farm in full. “It has made all the difference,” says Anderson of the federal agency’s financing help. “EDC is my hero.”

The simple science of quick collections

Jolera Inc. (No. 49) positions itself as a one-stop technology shop. That’s an appealing proposition for potential clients, but it brings with it a cash-flow challenge. Alex Shan, president of the Toronto-based outsourced IT services company, says that because Jolera routinely makes large-scale technology purchases for its clients, “we finance millions of dollars and take a hit on the interest.”

The firm manages this challenge by making a pitch to its customers: “We help you, so, in order to fulfill your requests, we need to make sure we get paid.”

The process begins as soon as Jolera submits an invoice. Its accounts-receivable department quickly calls the client’s accounts-payable department to confirm that the invoice has arrived, rather than risk finding out weeks later that it has fallen through the cracks. The call includes asking a simple yet powerful question: “Are there any problems with the invoice?” Solving minor issues with low-cost line items can reap big returns. “Sometimes a $10,000 invoice won’t get paid because of a $10 item,” says Shan. Fixing potential glitches like this can speed up payment by one to three weeks.

Another straightforward step is to find out the threshold amount at which paying invoices becomes more complicated, then keep individual bills below that. Many firms, for instance, send invoices above a certain amount to their board of directors for approval, even though the board meets only quarterly. “Breaking our billings down into small amounts increases the frequency of payments,” says Shan.

Jolera also builds first-name relationships between its accounts-receivable people and its clients’ accounts-payable staff. “It helps to get the ball rolling faster,” says Shan.