Surviving the Christmas Crunch

Christmas crunch sounds like a tasty dessert your aunty brings to the family potluck – but if you’re in business, it’s much less appealing.

Most business owners know that the end of the year brings with it a strain on cash flow. Clients close their offices, which means unpaid invoices and less work. Employees go on holiday, which means work isn’t done and holiday pay is owed. If you’re a retail business, you may have an increase in sales leading up to Christmas, but there’s also the possibility of overstocking and being forced to sell at a loss in the New Year.

The good news is, knowing about the crunch can help you avoid it – or mitigate the effects, at least.

Here are a few simple ways to reduce the impact on your business this Christmas:

Get your invoices out

Send your final invoices as early as you can, even if that means changing your invoicing schedule for the month. The earlier you get them done, the more likely it is that you’ll be paid before the holidays. Many businesses send their final invoices just before Christmas, which means they’re left sitting in a file when the office closes down for the season.

Terms and incentives

A change to your trading terms can make a difference to your cashflow – particularly at this time of year. Give clients a shorter period of time to pay their invoices, or offer an incentive to those who pay before the holidays. Just make sure that any changes are communicated clearly – you don’t want to come back to a backlog of angry emails in the new year.

Chase up your cash

A sale doesn’t count until you have money in the bank. Designate some time early in December to follow up on any unpaid invoices and, hopefully, bring in some extra cash before the holidays. If you have a number of outstanding invoices, you could think about bringing in debt collectors to help.

Take advantage of terms

It’s nice to pay bills before they’re due, but it’s not necessarily the best way to do business. Paying your suppliers when they’re due, and not before, keeps cash in your account for as long as possible, so there’s less of a lag between you paying suppliers and your customers paying you. Take a careful look at your suppliers’ trading terms to see if there’s any leeway.

Sensible stocking

It’s easy to get carried away with stock orders before Christmas. You want to have enough stock on hand to give your customers what they want, so you don’t miss out on sales. But overstocking can cause problems too. Any stock that’s bought but unsold ties up cash flow. If you can limit the level of stock you keep on hand, you can keep your cash fluid and avoid issues.

This might mean looking at past orders to predict potential sales, ordering from suppliers only when you need to, or buying a more limited range of stock that you know is likely to sell.

Plan for the worst

Hopefully, with enough planning and cash flow management, your business will survive the Christmas crunch and you’ll be raring to go in January. But, even if you think you’ll be fine, it’s a good idea to have a backup plan. If you do run out of cash over the holidays, make sure you have access to funds so you’re able to pay staff and keep your business alive.

This could mean arranging an overdraft with your bank, looking at short-term loan options, or asking shareholders for funding. Although the Christmas period is reasonably short, your cash flow issues could last longer – and a solid backup plan can help you survive.

As always in business, it’s smart to plan for the worst – but hope for the best.

Looking for help with your cash flow issues? Talk to the Thrive team today.