Preparing Your Business for Steady Holiday Cash Flow
The holiday season can bring unique cash flow challenges for B2B businesses. While some businesses boom, others slow down, and with consumers tightening their purse strings and a rise in late B2B invoice payments, this season is set to be even trickier than usual.
According to CreditorWatch, late invoice payments in Australia have recently reached a high, meaning many businesses may see cash flowing out, but it’s not flowing in as quickly.
Here are some tips to help your business maintain steady cash flow and start the New Year on solid financial footing.
Understand Changes in Sales Volume
For some B2B businesses, the holiday season means a boost in sales; for others, it’s the opposite. Understanding the unique patterns of your business will help you navigate cash flow needs. Analysing your business’s sales patterns during past holiday seasons can give you a solid basis for cash flow planning.
If Business Slows Down
If your business usually slows down over the holiday season, your forecast will likely show reduced cash inflow. If this is the case, planning how you will manage any overheads and fixed costs during the slow period is essential.
Expenses to consider when cash flow planning:
- Rent
- Wages
- Advertising
- Utilities
- Telecommunications
If Business Picks Up
If you’re anticipating a holiday rush, early forecasting will help you determine the amount of inventory, supplies, staffing, and other resources needed to meet demand. Reviewing historical sales data can be a great way to avoid unexpected shortfalls and maximise the busy period.
Reaching out to your regular customers to discuss their upcoming holiday plans and anticipated needs may provide insights into their future order volumes and timing. By understanding their expectations, you’ll be better equipped to align your cash flow forecasts with upcoming demand, as well as ensure you have the right level of stock and staff to fulfil their orders. This proactive approach can also strengthen your customer relationships, showing them you’re committed to supporting their needs during the busy season.
Many Australian businesses value invoice finance during the holiday season because it has the flexibility to cover cash flow constraints during slow periods, while allowing access to essential funds required when sales pick up.
Many Australian businesses find invoice finance helpful during the holiday season because it provides flexible cash flow support for those going through slow periods and quick access to funds for those seeing sales start to increase.
Review Payment Terms
During the holidays, late payments become more common, especially if clients are focused on their own year-end slow-down or business boom.
Consider these strategies to ensure you’re paid on time:
- Adjust credit terms. Compare your credit terms to those in your industry to see if they’re more generous than necessary. Shortening payment terms could speed up cash flow. However, it’s important to consider how this might impact customer relationships.
- Send reminders before the due date: Sending invoice reminders just before invoices are due can prevent delays, ensuring cash flow remains flowing.
- Offer early payment incentives: Encourage clients to pay earlier by offering small discounts. Sometimes, a small incentive is all it takes for a client to prioritise your payment.
Chase Overdue Accounts Early
If your sales tend to dip in December and January, consider collecting overdue accounts now. Leaving it too late can mean waiting until after the holidays for payment, putting stress on your finances. Here are some strategies that may reduce the cash flow burden of overdue invoices:
- Be proactive. Reach out early to clients with unpaid invoices, as their accounts departments might close over the holiday period.
- Invoice financing. Invoice finance allows you to access funds tied up in unpaid invoices so you can cover regular expenses, like wages or supplier costs, without waiting for customers to pay. This can help relieve some of the cash flow strain heading into the New Year.
- Consider a collections service. Having a third party take care of collections can significantly reduce stress and free up your time. At Earlypay, we provide an optional collections service as part of our invoice finance offering.
Plan for Efficient Stock Management
Keeping the right amount of materials or stock on hand is essential. Over-ordering can tie up funds in inventory, while under-ordering can mean lost sales opportunities.
For efficient stock management, consider the following:
- Forecast accurately. Use previous holiday data to forecast your stock, materials and staffing needs. Understanding peak sales will help you avoid excess inventory and ensure you have enough to meet demand.
- Communicate with your customers. As we mentioned above, checking in with your regular customers to understand their upcoming order volumes can help you ensure you have an accurate level of supply to meet the holiday demand.
- Trade finance. This type of financing can bridge the cash gap between ordering and selling stock. Whether you purchase products overseas or right here in Australia, trade finance provides funding to pay suppliers upfront, without having to spend your own working capital.
Start the New Year Off Right
Preparing now for the holiday season can set your business up for a strong start in the New Year. By forecasting accurately, using financing wisely, and managing payments carefully, you’ll reduce the likelihood of cash flow problems.
The team at Earlypay is here to help you make the most of flexible financing options, so you can navigate the season confidently.
With the right preparation and financial tools, your business can be merry and bright all holiday season long.
