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Q&A: Tackling cash-flow challenges in real estate development

The cash-flow specialists at Canadian Western Bank explain how developers can bank smart to minimize risk
real estate development

Real estate development companies face a variety of cash-flow issues, from borrowing capital, to paying suppliers and contractors, to day-to-day banking. The cash management team at Canadian Western Bank (CWB) knows how important it is to stay on top of current real estate industry trends, needs and challenges. 

Here, Kam Palak, Manager of Cash Management, answers key questions about how developers can strategize their banking methods to minimize risk, and how CWB is uniquely positioned to help.

Q: Where do you start at a strategy meeting when discussing cash flow and cash management with a developer client?

A: When thinking real estate development, the initial thought is usually about getting a loan and getting shovels in the ground. However, like all businesses, managing the workload, cash flow and execution are very important.

Revenue from real estate development can be months or even years in the making. As such, the industry can be complicated when it comes to cash flow. Usually, projects entail a large outflow of capital for a prolonged period with operating expenses on top of that. It is important that our clients have the right tools and understand their overall projection going out. This goes far beyond a projection, extending to how they manage their costs on a monthly and even daily basis.

Q: What are some of the key cash-flow challenges that developers often face?

A: Most developers face the same challenges – primarily, paying their contractors or sub-contractors, materials, marketing and labour costs. In our experience, we commonly see active and successful developers spending too much time working through the payments and cash flow than focusing on their core business. More often than not, we have company owners issuing cheque after cheque – occasionally with the caveat, “Please wait until next week to cash this.” There have been times where the cheques were lost or, worse, stolen, misplaced or cashed five months later. This further increases the workload and risk our clients face. 

At CWB, we work with our clients to optimize their outflow through a variety of methods. Instead of simply providing a loan and sending them on their way, we have a local team of experts that figures out their project, how they pay and how they want to pay, and provides the right tools to do that. Many of our developer clients are surprised when we say they can send a direct deposit to your sub-contractor and have them paid. Their previous method may have been to issue and mail a cheque, follow up on it, and then reconcile once it has cleared. 

Additionally, we try to work with our developer clients to implement controls in their online and digital channels, further freeing up time, saving money, and creating peace of mind. 

Q: What are some of the challenges on the capital side?

A: The other end of the equation is when the funds come in. Once our clients have been paid, it’s key that they park their funds in the right vehicle that gives them flexibility and return. As they plan the next project, we ensure that their capital receives a high interest rate, and can be available when they need it. This could be short term or long term. 

At CWB, we even go one step further. When clients are required to deposit their pre-sale funds with a law firm, we work with that firm so we can offer the best interest rate possible. When the funds are transferred to the developer, they know that they have been taken care of all the way through. 

Q: What sets Canadian Western Bank apart in its cash-flow management services? 

A: Our key separator is that we manage the entire relationship locally. Our Relationship Managers, Cash Management team, and leaders are local to the market and the branch. From our credit decisions to our implementation, there are no Toronto call centres, no 1-800 numbers, not even voicemail. We have a live deal team that you can access with top of market knowledge and expertise all the way through. It’s our approach for all our clients and business owners. 

For more information, insights and advice on cash management, visit Canadian Western Bank at