Getting your cash flow right this holiday season

November 24, 2023

As hard as it is to believe the holiday season is once again firmly in sight. For many businesses this period, from December to after Australia Day, traditionally represents the toughest time of the year in terms of their cash flow. As offices shut down or move into holiday mode sales slowdown and payments from customers become less reliable. Whilst at the same time, you may have to manage leave payments for staff, end of year bonuses and continue to pay your bills to keep your own creditors at bay.

The key to surviving this and guarding against other slow periods and shocks to your businesses cashflow is instituting good cashflow planning. And if you haven’t already, now is the time to be doing this.

Have in place adequate finance facilities.

One of the first and most fundamental components to effective cashflow planning in a growing small business is to have in place the right finance facilities to support your business. One of the mistakes a lot of small businesses make when trying to grow is leaving themselves undercapitalised. Whilst as a business you should never be overly reliant on debt, if it is the right facility for your type of business it can allow you to better manage seasonal variances and unforeseen events impacting cashflow. An overdraft account is a popular facility for a lot of small businesses as it allows you to draw down on the funds only when they are needed. This is ideal for businesses whose cashflow varies seasonally and through different times of the month as well as providing the agility to support future growth.

Sound Debtor Management

There are two key components to managing debtors that will help improve how swiftly you get paid. Firstly, whilst it may seem obvious, prompt and accurate invoicing to your customers is paramount. Whilst this is necessary at all times of the year it becomes even more important as we get close to the end of the year. To minimise delays and validation issues get your invoicing done and sent as close as possible to the time you have delivered your good or service. An example of how you may need to alter your billing cycle for the end of the year applies to businesses issuing monthly invoices close to the end of the month (common for a lot of service businesses). As offices start to close from mid-December you would be best to send invoices out earlier in the month to avoid these being put in to the ‘next year’s problem’ basket.

The next component is to be diligent in enforcing payment due dates. It is much easier to get a new customer to pay on time then it is to enforce terms later down the track after a habit has been formed. This comes even more in to focus as you approach the end of year and customers who would normally pay a few days after the end of month are now paying a few weeks late as offices are closed and accounts are on extended leave. To that end there is also no harm in checking in with customers in December before an invoice is due to ensure the holiday season will not impact the payment of your invoice or to request payment be made before their office closes for the holidays.

Monitoring and forecasting your Cashflow.

It is important that every business track their cash movements and maintain a forward forecast of their cash flow position detailing their expected incoming receipts and required payment commitments. A good cash flow forecast serves as an instructive guide that helps you remain cash flow positive, meet key payment commitments and foresee the ups and downs in the business which will empower you to plan for this and act accordingly.

Some important tips for managing your cash flow forecasts over the holiday season:

As mentioned earlier you will likely see later payment times from customers and your forecasting should reflect this. Obviously expecting later payments isn’t the same as accepting them and you should still seek to get paid on time where reasonable.

Ensure you prioritize payments to essential vendors and attempt to push back your non-essentials. Communicating these amended payment timings with your vendors is best practice.

Monitor and review your non-cash assets (people, inventory etc) and how you utilise these:

Schedule early all employee leave over the period. A lot of workplaces will close or revert to a skeleton staff which can help to reduce their payment commitments over this time. It is essential however that you know your legal rights and obligations when it comes to enforcing leave and if unsure speak with a workplace lawyer beforehand.

Be aware of your inventory levels as being understocked or overstocked can be a cause of a lot of problems over this period. One strategy as you get closer to the end of year, might be to consider more Just-in-time ordering options to avoid minimum order requirements that will have you sitting on stock that you will have to pay for but will not be able to sell to the new year.

Some other Helpful Cashflow tips

Some other strategies that may come handy for managing cashflow over the holidays include:

Having multiple ways for your customer to pay: Whilst EFT and BPAY are the standard, having the ability to accept credit card, put your customers on scheduled direct debit and giving them the option to pay online helps make payments more convenient for your customers during a time they are likely short on time as much as they are short on money.

Using your Credit Card smarter: If used wisely, a Credit Card can also be an easy and cheap way of gaining an additional line of credit with suppliers over the holiday period. Credit Cards are generally easy to apply for, can be low cost (if repaid on time) and most importantly can grant you up to 60 extra days to pay your bills. There are some caveats, however. You should avoid paying vendors that charge a high surcharge, you need to pay the balance due on time to avoid high interest fees and to maximise credit terms you should time payments at the beginning of the card billing cycle.

While the silly season can be a challenging time for a business’s cash flow, with a little bit of forward planning and some proven strategies the worst of this can be managed and will allow you to start the year with a healthier bank account and get a jump on your competitors still suffering a post-holiday cash flow hangover! If you would like help with implementing these plans or would just like to have a no obligation chat about your businesses cash flow and your options, I invite you to connect with me and the BGES team.

Disclaimer: This is article provides general advice and is not intended to be tailored accounting and financial advice. Advice may vary depending on your business specific circumstances.

Joseph Essey – Associate Partner – Small & Medium Business Advisory, Accounting and Financial Control