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Kurt Hibchen learned a valuable lesson about business financing long before he became an entrepreneur. While doing design work for the National Film Board, Hibchen confided to a fellow contract worker that although he loved the work, he was unhappy that the NFB hadn’t paid him by the date it had promised.

Hibchen expected a sympathetic ear. Instead, his colleague told him it was his own fault for continuing to come in to work without having been paid. “So, I told the NFB I wouldn’t return until they paid me,” recalls Hibchen. “They couldn’t believe it—but they quickly paid up.”

If you lie on the floor, people will walk all over you. Hibchen applied that old saw to the business world upon co-founding Toboggan Design Inc., adopting a no-nonsense policy of suspending work for any client that hasn’t paid it within 30 days of being invoiced.

“We’re a supplier of design services, not a bank,” says Hibchen, president and CEO of Toboggan, a museum-exhibits designer that ranks 92nd on the 2012 PROFIT 200. “Many business owners feel this policy would damage their relationships with clients. But that’s not at all what happens. Clients end up respecting you more.”

Toboggan’s hard line is just one of several smart ways in which PROFIT 200 companies have met the challenge of finding operational and growth capital. Your own business faces the same challenge, no matter which sector it operates in. And the solutions described here offer you a diverse menu of alternatives to traditional bank financing. (For ways to work effectively with the banks, see “Bank on This”)

One key lesson is how to stand firm without alienating your clients. Hibchen says it’s crucial to do so in a friendly and respectful way: “You don’t want to come off as unpleasant or demanding.” Instead, Toboggan simply explains to new clients that in return for providing top-notch work, it expects to be paid on time.

Only rarely has the firm had to suspend work. And once initially surprised clients see that Toboggan isn’t backing down, they soon pay up. Hibchen says his Montreal based firm has written off less than $1,000 in bad debt since its launch 13 years ago.

Endo Networks Inc. (No. 60) takes a different approach to the critical task of not running out of cash. Peter Day, president of the Oakville, Ont.-based consumer-intercept marketing agency, says his firm adopted its approach to deal with a bitter irony: “Your clients are so happy with what you’re providing to them that they give you rapidly increasing deals. Suddenly, you’re in a terrible cash-flow crunch that threatens you with going broke.”

Endo ran into this challenge when deal sizes for its No. 1 client soared from less than $200,000 to more than $4 million, and grew by at least tenfold for several other customers. His solution was to have a frank discussion with clients about any projects that would put significant cash-flow pressure on his firm. Endo reps politely point out that their firm will need outside financing to cover significant out-of-pocket costs, then will add this financing expense to its invoice—unless client and supplier can find ways together to shrink or eliminate these costs. Often, that entails staggering the delivery schedule, delaying the launch or altering the statement of work.

Endo reps and clients usually find ways to reduce or eliminate the need for outside financing. And the discussions yield another benefit, says Day: “Having an open dialogue about this has strengthened our relationships with clients.”

Many PROFIT 200 firms have turned to another option to meet the financing challenge: term loans, although not from a chartered bank. Matthew Horne at DECO Windshield Repair Inc. (No. 21) voices a lament about the chartered banks that’s common among entrepreneurs: “The account manager loves us and our business. Then, he turns our loan application over to the credit department and it’s always denied.”

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