SMEs are being pressed to immediately begin preparing for the annual cash flow slump associated with the holiday season, which can leave businesses shortchanged for up to two months.
“Even if you’ve had a great trading period leading up to Christmas, and have a healthy stack of money owed to you, you likely won’t see this money until closer to February next year,” said Leigh Dunsford, co-founder of invoice finance provider Waddle.
“[This] black-out period is sometimes the precursor to insolvency. The biggest danger falls just outside of this period, usually from February to March. Often businesses who have just enough cash reserves to get through, relying on payments to pick back up, can leave themselves stranded, on stop credit with suppliers, inability to pay wages, ATO pressure, leading to collapse.”
According to Mr Dunsford, taking a wait-and-see approach to cash flow can be dangerous, as finding yourself desperately short of funds can easily lead to “cutting corners, eroding profits or getting stuck in unwanted high rate loans.”
He suggested the following points can help businesses ease the cash flow pinch over the holidays to ensure the business starts the new year on a happy note:
- Offer early payment discounts to customers that have invoices outstanding, which incentivise them to pay you early.
- Do a cash flow forecast by looking back at the past year to help determine your costs through to February and March.
- Proactively ask for extended supplier terms to see you through to the end of February.
- Put larger bills on payment plans to prevent large outgoings.
- Put in place a back-up plan line of credit to draw funds from receivables should it be needed.
See more advice for avoiding a Christmas cash flow hangover.