Canadian small and mid-sized businesses are feeling more pressure on cash flow, even when they remain profitable, according to Daryl Ching, founder of Toronto-based VistanceAccounting.
Ching’s firm works with about 50 small and mid-sized businesses across manufacturing, consumer packaged goods, ecommerce, wholesale and retail. He said more of those clients are looking for help managing working capital as money gets tied up in receivables and inventory.
“A lot of our work used to be centred around improving gross profit margins,” Ching said. “We’d look at pricing and variable costs and figure out how to improve profitability. Now, a lot of that work has shifted to working capital.”
Some of his clients are profitable on paper but still having trouble with cash flow. For Ching, that has meant spending more time looking at the balance sheet and helping clients collect money faster, manage inventory and deal with financing.
“I have a lot of clients that are profitable on paper, but they’re still struggling with cash flow,” he said.
Businesses Waiting Longer for Their Money
Late payments are part of the problem. Xero’s Canadian Small Business Insights reported in April that Canadian small businesses were being paid an average of 11.6 days late, up from 10.5 days previously.
Ching said some of his clients are working with payment terms of 60 or 90 days, and late payments can make those arrangements even more difficult. His firm has been helping clients improve collections while also looking at when they pay their own suppliers.
“A lot of the work has been around receivables and figuring out how to get collections in faster,” he said.
Inventory is another area getting more attention. Businesses that once kept additional stock on hand as a cushion are having to think more carefully about how much money they can afford to leave tied up in product.
“You might have had the luxury of ordering extra inventory to make sure you had enough,” Ching said. “You don’t have that luxury anymore. You need better demand forecasting.”
The issue is particularly relevant for retailers, wholesalers and consumer-product companies. Inventory needs to be purchased before it can be sold, and the business may then have to wait again before receiving payment from a customer or wholesale account.
“A lot of our work recently has been more on the balance sheet than on profit and loss,” Ching said.
Tariffs Put More Cash Into Inventory
Tariff uncertainty has complicated those decisions. Ching said some clients initially responded to the threat of tariffs by placing large orders ahead of potential changes, tying up money that would otherwise have been available to run the business.
“I had a whole bunch of clients do large bulk orders just in case,” he said. “That put them into cash difficulty.”
He is seeing less of that now. Businesses have had more time to adjust to changing trade policies and are less likely to react immediately when another product or industry appears likely to be affected.
“My clients aren’t rushing anymore,” Ching said. “They’re waiting to see what happens because we’ve learned that things can change again the next week.”
Canadian retaliatory tariffs have also affected some of his clients, particularly businesses buying products or raw materials from the United States. In those cases, Ching said companies have either absorbed the additional cost or looked for another supplier.
Research from the Canadian Federation of Independent Business has also found financial pressure from tariffs and trade uncertainty, including higher costs, weaker profits, supply-chain disruptions and postponed investment among affected businesses.
Lines of Credit Become a Bigger Concern
Lines of credit can provide businesses with short-term liquidity when cash is tight. Ching is concerned when companies remain heavily dependent on them for extended periods.
“With the working-capital squeeze, a lot of times it starts with a line of credit for short-term liquidity,” he said. “But when that persists over a long period, the short-term loan starts to look like long-term debt.”
He points to a business that has kept its line of credit fully drawn for several years as an example.
“If you have a line of credit that’s fully leveraged for three years, to me that’s long-term debt,” Ching said. “All of a sudden you’re carrying long-term debt, and that’s a structural weakness in the balance sheet. It also makes it harder to borrow from a bank.”
Ching said he is spending more time helping clients prepare for financing as a result. Business owners want to know what they can do to improve their financial position before going to a lender.
Conditions across the SME sector are mixed. Recent research from the Business Development Bank of Canada has shown some improvement in expectations, with more SMEs expecting cash flow to improve over the coming year and fewer expecting it to deteriorate.
Ching’s client base represents only a portion of Canada’s SME sector, but it gives him a close look at how cash-flow problems can develop inside otherwise viable businesses.
CEBA Repayment Deadline Approaches
Businesses with outstanding Canada Emergency Business Account loans also have a deadline approaching. Remaining CEBA principal is due December 31, 2026 for borrowers that continue to carry balances.
The loans were introduced during the pandemic to provide emergency financing to businesses. Loans that remained outstanding after the January 2024 forgiveness deadline became interest-bearing term loans, with the remaining principal due at the end of this year.
Ching said the deadline could add another demand on cash for businesses already managing other debt and operating expenses.
More Attention on the Balance Sheet
Ching continues to work with clients on margins, pricing and profitability, but cash management has become a bigger part of those conversations.
For some businesses, stronger sales can require more inventory and more money up front. If customers are also taking longer to pay, the gap between making a sale and collecting the money can grow. Businesses may turn to their lines of credit to cover that period, adding another cost to the equation.
That is why Ching is spending more time looking beyond the income statement.
“You can be profitable on paper and still struggle with cash flow,” he said. “You have to manage your receivables, your inventory and your payables. That’s where a lot of the pressure is right now.”
