A recent survey from Xero highlighted that over half of small businesses in Canada cited inflation as negatively impacting their cash flow management over the last six months. For Canadian SMBs involved in international eCommerce, rising cross-border shipping costs are further squeezing cash flow at an already challenging time.
Economic Headwinds Challenging Canadian Entrepreneurs
With inflation in Canada hitting a 40-year high and the Bank of Canada rapidly raising interest rates to cool price growth, small and medium-sized businesses across the country are feeling the squeeze. Prices for inputs like raw materials, equipment, and labor are surging, while higher borrowing costs mean the taps are tightening on business financing.
The situation has gotten so bad that nearly one-third (31%) of Canadian small business owners have been unable to pay themselves at times in the last 12 months.
Jeff Brown, Head of Commercial Solutions at Equifax Canada, warned that “The rising costs of doing business may threaten a wave of insolvencies. Businesses will be dealing with the dual challenges of high inflation and the elevated cost of borrowing.”
With profits under pressure, Brown anticipates “an increase in demand for credit, particularly from enterprises wrestling with existing debt.” However, acquiring financing to ease cash crunches could be easier said than done in the coming months.
International Shipping Compounds Cash Flow Woes
On top of broad inflationary headwinds, Canadian SMBs involved in cross-border eCommerce are facing a more specific cash flow threat – rising costs for international shipping.
Global supply chain disruptions and sky-high fuel costs have caused average international shipping rates to surge significantly in recent times. For SMBs heavily reliant on global exports, these mounting delivery costs quickly eat into cash reserves.
Carmit Glik, CEO of digital freight forwarder Ship4wd, explains that “Managing cash flow is among the most prominent problems small and mid-sized businesses face when importing or exporting goods. SMBs have fallen between the cracks regarding transportation and when trying to finance their businesses.”
While international sales may be critical revenue streams, every additional dollar spent on transporting goods across borders is one less dollar available to cover other expenses. As cash gets tied up in transit, it can constrain a company’s ability to scale. As Glik describes, “Cash flow then becomes the glass ceiling for growth for many SMBs.”
Strategic Cost Cutting Without Sacrificing Customer Experience
To improve cash flow positions, Canadian SMBs involved in cross-border trade will likely need to find ways to reduce international shipping costs. But decreasing expenses can be tricky – businesses can’t afford to sacrifice customer experience or delivery reliability in the process.
As such, analyzing current shipping routes, consolidating deliveries, and negotiating rates are potential avenues to lower costs without significantly affecting service levels. However, the devil is in the details – and SMBs will need to thoroughly examine where fat can be trimmed from logistics budgets. Some strategic cost-cutting tactics could include:
- Renegotiating contracts with current shipping providers – volume discounts may be possible
- Comparing rates across multiple carriers to find the most cost-effective option
- Leveraging technology to optimize delivery routes and consolidate shipments
- Exploring alternate modes of transport (air vs ocean) depending on time sensitivity
- Using freight forwarding middlemen to get bulk discounts
- Passing minor logistics cost savings to customers as an incentive to keep business
The key is balancing affordable shipping rates with maintaining excellent customer service. International customers must still receive quick and reliable deliveries, with transparent tracking and status updates throughout.
Moreover, open communication with consumers on any changes being made can help manage expectations. Being proactive and offering alternative solutions if issues arise goes a long way in preserving a positive experience.
Weathering the Storm Through Smart Cash Management
To survive and thrive through challenging economic seasons, entrepreneurs must take active steps to master cash flow management.
Xero’s Canada Country Manager, Faye Pang, notes, “With many small businesses facing the challenges of inflation head-on, having access to tools that can help simplify the cash flow process is essential to weathering difficult economic times and sustaining growth.”
For those involved in international commerce, solutions like Ship4wd’s financing options, extended buyer repayment terms, and “buy now pay later” programs can buoy cash flow and provide breathing room when cross-border shipping costs pile up.
With inflation raging and fears of a recession looming, storm clouds are gathering over Canadian small and medium-sized businesses. Yet, by making strategic moves to streamline costs and leverage tools to ease cash crunches, entrepreneurs can help ensure smooth sailing in choppy waters ahead.