Christmas is approaching. For most people, that’s a cause for celebration, but for small business owners, the festive season can bring with it serious cash flow problems.
There are several causes of Christmas cash flow problems. Certain sectors simply get busy, and lengthening payment terms can lead to cash flow shortages trickling down through supply chains. For other industries, the Christmas season is the quiet season, and income dries up.
Add to that the issue of staff holidays. Paid holidays trigger lower productivity, while wage costs remain consistent. And when a client’s accounts payable staff take their holidays, the inevitable result is a delay in invoice payments.
Seasonal cash flow problems are especially acute in Australia, where there’s a tendency for the annual slowdown to last until Australia Day. It all adds up to a perfect storm, threatening the survival of otherwise healthy businesses. But there are solutions to seasonal cash flow problems. Read on as we explore a range of cash flow management techniques you can implement over the coming weeks and months.
Solutions to seasonal cash flow problems
1. Set boundaries
It’s nice to be nice, but in business, boundaries are important. Nowhere is this truer than when managing your cash flow. It’s best to ensure clients understand your payment terms at the outset – especially around what constitutes an acceptable payment window. And, while negotiation is a natural part of business, it’s vital to define your red lines – and to stick to them.
2. Be proactive
Providing clarity will avoid many – but not all – late-payment issues. A proactive approach is needed to manage slow paying debtors that slip through the net. Don’t rely on a client taking the initiative to settle their invoice – instead, take a firm but diplomatic stance and chase late payments proactively. Create a schedule and send out pre-formatted reminders – ideally just before a payment runs late.
3. Be flexible
It’s often said that having a part of something is better than having all of nothing, and this adage applies perfectly to Christmas cash flow management. If you suspect your clients will struggle to pay invoices upfront (or settle within your deadlines), then set out partial-payment terms instead. When the numbers are tight, even laying your hands on a percentage of what’s owed to you could alleviate a seasonal cash flow problem.
4. Fight your corner
Managing cash flow effectively is about more than bringing payments in on time. You also need to fight your corner and secure the best possible terms from your own creditors. Push for the longest payment window available – and when it comes to regular suppliers, don’t be shy about using your credentials as a repeat customer for leverage.
5. Create a safety net
Savings could provide your business with a vital safety net, so if you’re in a position to, then save during the good times to see you through the lean. Be sure to invest in an interest-paying account (no one wants to watch their cash sit idle), but check that it’s accessible to you, as and when it’s needed. Finally, if a seasonal cash flow problem forces you to draw on your reserves, then don’t forget to top them up again when the opportunity arises.
It’s probably on your agenda anyway, but growing your business is one of the most effective solutions to seasonal cash flow problems. Growing your profit margins will typically give you more wiggle room. Growing your revenue alone is riskier, since high-revenue, low-profit businesses are vulnerable to cash flow problems – but the bigger you are, the stronger your bargaining position with suppliers. Business Insider’s guide to managing Christmas cash flow includes plenty of actionable growth tips.
Managing cash flow in a seasonal business
Christmas cash flow problems affect many SMEs, but the issue can be especially challenging for seasonal businesses. Sharp spikes in customer demand make it difficult to hold sufficient stock, but over-buying can leave you unable to meet your financial obligations. Equally, it can be easy to run out of ready funds in the lean out-of-season spells.
It’s a challenge that requires foresight and planning. Savvy seasonal-business owners keep meticulous records to serve as a roadmap in future years. Statistics can be confusing but look for broad trends and project forward accordingly.
Seasonal cash flow problems are one of the commonest reasons to consider an unsecured business loan, but it’s vital to secure acceptable terms that won’t create a bigger problem down the line.
Invoice finance – a cash flow boost to get you to the New Year and beyond
Sometimes, despite your best efforts, the numbers simply don’t add up – leaving you with a cash flow problem. Conventional business loans aren’t always viable, but our invoice finance platform provides an innovative and accessible solution that’s ideal for SMEs.
Invoice financing allows businesses to access capital upfront, using their unpaid invoices as security. If your own business is healthy, but suffers from seasonal cash flow problems, then explore how the Waddle invoice finance solution could help.