Met two companies here in the Toronto area that are growing so fast they have cash flow issues. It’s that perverse situation where your A/R more than covers the bills, but A/R ain’t cash yet.

These companies have to pay the costs of doing the work before their customers pay them. Because they’re growing fast and customers often take 60 to 90 days to pay, they’re spending more cash this month than they’re bringing in. Their expenses to service the larger volume of business this month exceed the cash they get from the smaller amount of business they did three months ago.

You don’t want to factor, because factoring is expensive and gross. So what do you do? Squeeze the vendors and slow the growth. Not a great solution but understandable given the circumstances.