4 Common Causes of Christmas Cash Flow Problems

December 23rd, 2021

Cash flow problems are the leading cause of business failure in Australia. So the last thing you want for your business this Christmas are troubles with cash flow. 

Managing your cash flow effectively at any time of year is all about managing the timing of your cash inflows and outflows as best you can. You need to ensure that you have the funds available to meet all your business expenses and debt repayment obligations when they are due. 

We discuss four common Christmas cash flow problems and how you can avoid each one.

1. Reduced Sales over Christmas

Depending on what type of business you have, Christmas could be a time when your cash flow increases or decreases. If you quieten down, your cash inflow will reduce, but any fixed expenses that you have won’t.

How to minimise the impact of reduced cash inflow over Christmas

You should:

  • eliminate or minimise any non-essential business expenses until your cash inflow picks up again after Christmas.
  • Buildup a buffer of your cash inflow over the year to help you cover for the quieter Christmas period.

Look for a finance solution like trade financing to help you pay your suppliers so you’ll have the stock you need to get cash inflows in the New Year.

2. Reduced profit margins on Christmas Sales

If you’re offering Christmas specials below your everyday prices, it reduces the amount of profit you make per item you sell. This can affect how much money you have available to meet your business expenses over the same period.

How to minimise the impact of reduced profit margins over Christmas

You need to make sure that you sell more of your Christmas specials so that your cash flow doesn’t suffer. In other words, your number of customer sales needs to increase. It’s a basic economic principle that if you reduce the price of your product or service, the demand should increase. However, it’s essential to get the message out there that your goods or services are going for less than usual. 

Utilising email can be a great way to communicate to your customer base and extended network that you have current sales running.

3. Late Customer Payments

If you offer your customers credit over Christmas, there is a higher risk of late payments, with many consumers grappling with multiple bills and overspending.

How to minimise the impact of late payments

You can minimise the risk of late customer payments impacting your post-Christmas cash flow by:

  • look for a finance solution like invoice financing if you have outstanding customer invoices.
  • offering your customers a discount for early payment
  • not offering credit at all.

4. Poor stock management

Being both understocked and overstocked can negatively affect your cash flow. Being understocked means that you run out of stock to sell, reducing your cash inflows.

On the other hand, being overstocked means that you have funds unnecessarily tied up in stock, reducing the amount you have available for your expenses and debt repayments.

How to minimise the impact of late payments

It’s important to do realistic forecasts of your Christmas stock requirements, taking into account any expected increases or decreases over the Christmas period.

Invoice and trade finance can help you to boost your stock levels before Christmas without requiring you to dip into your working capital.

The bottom line

Christmas shouldn’t be a time for worry. Managing your business cash flow effectively over Christmas can help reduce stress and will help you to start the New Year off on a firm financial footing.

Earlypay has supported Australian SMEs with fast and flexible alternative funding solutions for more than 20 years. Our invoice finance, asset finance and trade finance products allow business owners to proactively manage their cash flow, freeing up their working capital for investing in growth. To chat about whether our solutions could be right for your business, please call us on 1300 760 205. 

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