While the period leading up to Christmas represents a growth opportunity for businesses, the summer holiday itself presents a number of significant cash flow challenges. After the holiday rush, businesses are still left paying for parties and holiday bonuses, leaving their budgets strained. Because of this, many don’t have sufficient working capital on hand to manage their costs during the month-long quiet period.

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This is a problem, because revenues tend to slow to a trickle during this time. As critical employees begin to depart on holiday leading up to the break, many businesses fall behind on payments, meaning that customer payments may go unpaid until after the holidays. To make ends meet, and ensure that they’re ready to start the coming year strong, businesses need to do everything they can to boost their working capital, and prepare other financing options.

Budget for upcoming costs

To prepare for the summer holiday, businesses first need to consider their upcoming costs, and determine exactly what resources are available. When doing this, it’s important to also consider costs immediately after the holidays, as late-paying, and possibly also cash-strapped customers may not be immediately ready to pay outstanding invoices. Moreover, GST and provisional tax payments due on 15 January can be an additional burden for many businesses.

Manage payment terms and prioritise payments

To help reduce their financial burden during this time, businesses should work to determine which payments need to be prioritised, and which could be delayed. To do this, they need to consider their legal obligations, as well as practical concerns. If costs will be difficult to manage, it may be worth it to get in contact with suppliers, and attempt to negotiate for an extended payment term, or partial payment.

Send invoices out early

Once holiday costs are minimised, businesses need to maximise the amount of working capital that they’ll have available. A great way to do that is to get ahead of the problem of late incoming payments. Instead of issuing invoices immediately before, or even during the holidays, it’s best to send them out as soon as possible. This gives customers more time to pay before critical employees begin to disappear on holiday, stopping outgoing payments in their tracks. More importantly, it ensures that they receive the invoices, and have a chance to process them before they run into their own cash flow problems.

Additionally, businesses should follow up on outstanding debts, contacting late-paying customers about making payment before the holidays. Even partial payment can make a big difference when times are lean, such as during a long quiet period.

Use off-balance sheet financing options

For many businesses, even this won’t be enough to cover all their costs during and immediately after the month-long summer holiday. To come up with additional working capital, businesses can turn to off-balance sheet financing as a way to gain more liquidity without resorting to the use of debt.

Invoice finance

Invoice financing allows businesses to collect an advance on their future income. Rather than waiting for an invoice to come due, the business can finance right after issuing it for an immediate cash payment. Fifo Capital, or a similar financial institution that’s receiving the invoice will pay for most of the value of the invoice right away, giving the business the liquidity it needs. Then, once the invoice is due and the customer pays, the rest is paid out, minus the financial institution’s predetermined fee.

This makes it a great way to come up with additional capital very quickly, and without taking on debt. More importantly, it can help businesses to circumvent the issue of late payment by some customers, by simply financing invoices of more reliable customers that wouldn’t otherwise come due until after the holidays. Then, after the holidays, the late customers can catch up payment, keeping cash flow stable.

Supply chain finance

Supply chain finance is a tool designed to help businesses manage supplier payments when cash flow is unsteady. Instead of paying out of their potentially depleted working capital, their financial institution offers payment to suppliers on their behalf. The business, for its part, can defer their own payment to the financial institution by up to 90 days after the supplier’s invoice is issued. In this way, businesses can delay outgoing supplier payments until after the holidays, when customers are back at work and able to pay bills.

Managing cash flow during a quiet time like the holidays is a complex process, and requires careful management of a business’ partners, their budget, and their available financing resources. By planning ahead, working with partners, and taking advantage of the financing tools available to them, businesses can make sure that 2020 will be their best year yet.

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