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Small businesses are being urged to start preparing for the annual Christmas slowdown now, with one of Australia’s largest debt recovery agencies warning it is the most dangerous time of year for cash flow.
Roger Mendelson, CEO of Prushka Fast Debt Recovery, says many SMEs don’t plan ahead for the quiet period over Christmas where customers wind-up their spending, putting a strain on cash flow.
A recent MYOB survey revealed 77 percent of businesses are impacted when a customer fails to pay, this is compounded during the Christmas slow down when SME’s are often struggling.
“Christmas is always a difficult time for SMEs as most clients close until late-January and we constantly deal with the repercussions of those businesses that haven’t planned ahead and put processes in place to see them through this period,” Mendelson said.
“For most SMEs who fail to prepare, they won’t feel the impact of the slowdown until after the New Year when the cash flow drop-off hits them. The period of February to March is the most common time for businesses to collapse – I call this graveyard month for SMEs.
“Once businesses start feeling the pinch at this time, it’s often too late to do anything and they’re left chasing their tails.”
MYOB also found 52 percent of surveyed SME’s believed a lack of regard for invoicing terms and payment processes was the main reason for late or slow payments.
Mendelson says businesses must respond to inefficient payment procedures and implement processes to secure their cash flow going forward, whilst taking advantage of the current steady economic conditions to minimise their debt.
“Australia’s last recession was more than 25 years ago so we are well overdue. SMEs must review their cash flow now or put themselves at risk of collapse when a downturn eventually hits,” he said.
“Banks have, for the most part, moved out of the small business-lending space so SMEs won’t be able to rely on any financial support. Instead, they should be looking to improve the efficiencies within their collection processes and work to bolster their cash flow.”
Prushka offers the following checklist for businesses to protect themselves ahead of Christmas:
- Assess your cash flow and make arrangements now if you need support from your bank
- Get bills out as soon as possible to ensure businesses make payment before they close down
- Focus on completing current orders and billing them rather than getting new orders
- When ordering equipment and supplies, specify you won’t be paying until mid-February
- Get on the phone and speak to customers whose accounts are overdue and get promises to pay
- Offer discounts on accounts which are paid a few days before Christmas
- Defer any purchases which can be held off until after Christmas
- Go through old and written-off accounts and refer them to a collection agency as soon as possible
Image (sourced): QVB Sydney