Christmas is thought by many to be a happy time however, many small business owners dread the holiday season as cash flow can become a serious issue, writes Prushka CEO Roger Mendelson.
The decline can start mid-December, when you are likely paying your employees Christmas leave, and for some there is even the extra expense of additional leave loading.
This time period is also where your customers will likely start to go on leave, and with most customers not fully back on deck until late January you may be faced with an increase in delayed payments.
The impact of this slowdown will likely flow into February and March, when back to school expenses for household customers will limit spending capabilities. If a business is going to fail, this is the most likely period, when the above factors come together.
It is critical to plan for improved cash flow well before mid-December, and time is running out to get ready. The following tips will help your business better its position ahead of the upcoming slowdown:
Focus on invoicing
It can be tricky to know where to start, so an easy first step is to start getting invoices out as soon as you can. Don’t wait for the end of the month, as this will delay payments and negatively impact your cash flow. Focus on orders that you can fulfil quickly and defer meeting orders that can’t be completed properly until after Christmas.
If you’re looking to get some quick cash in the door, consider offering a discount when sending out invoices before Christmas. For example, you could offer 2.5 per cent the total price if the payment is made by 23 December at the latest. This will ensure your business is getting cash in hand when you need it most.
Only place orders that are absolutely essential before the holiday season. This will make sure you’re not spending cash on business expenses that can be transferred into the new year. Even deferring placing orders until after Christmas will benefit your cash flow. Additionally, if you’re looking at making any improvements to your business premises or new equipment, it’s important to defer these capital expenses until after Christmas. These expenses can often be big, so it’s handy to have extra cash in the rough months if your business improvements can wait.
Negotiate deferred payments
To improve your cash flow when placing orders, another step you can take is to organise deferred payment arrangements. Most suppliers will be happy with this arrangement but it always comes down to if you don’t ask, you won’t get. A deferred payment arrangement allows you to hold onto cash for a bit longer, with the aim to defer payments on new orders until mid-February. With these arrangements, it’s critical to confirm the details in writing.
Get on the phone
Another way to boost your cash balance ahead of the holidays is to review your debtors. Being proactive in addressing overdue accounts and getting payments finalised can get you the cash you are owed faster. Pick up the phone and chase your overdue customers to pay you immediately.
Dig out your old unpaid accounts
Accounts have an enforceable life of six years. Dig out invoices which you may have written off in the past and send them to a no recovery – no charge debt collection agency. Just because you have written off the account in your books, doesn’t mean the defaulting customer can get away without paying. Get a debt recovery agency working on those accounts as soon as possible, so that you’ll have some well-deserved money coming to you early in the new year.
Implementing these steps in your business processes before the holiday season will ensure you’re set up for positive cash flow year-round.