The holiday season is a critical time for businesses, particularly for retailers and businesses in their supply chains. In an effort to maximise the benefit of such a massive seasonal increase in demand, businesses need to temporarily boost their operational capacities to match. That means hiring temporary workers, purchasing additional and seasonally relevant stock, and implementing an advertising strategy to get as much attention from holiday shoppers as possible.
This, of course, requires a significant up front investment. Unfortunately, businesses rarely have a lot of working capital available to fund a seasonal boost like this. To remain competitive, they need to ensure that the capital they have is being used to benefit the business, not sitting around for special occasions. Moreover, because of the temporary nature of seasonal increases in demand, traditional financing is often both impractical and difficult to access.
To deal with this, businesses often rely on invoice and supply chain finance to provide them with the liquidity they need. These tools allow them to maximise revenues during the holidays without any traditional financing, and without being forced to inefficiently save up funds in advance.
Traditional financing isn’t well suited to seasonal investments
A business looking to adapt to a permanent boost in demand will typically be able to take its time to make suitable structural changes. This would allow them to build relationships with investors, or to negotiate with lenders for a suitable business loan, which would be far larger than the sum needed for a more temporary opportunity.
A seasonal boost like the holidays is inherently short-term. That means any investment made into it will produce returns fairly quickly, and will typically be relatively small. After all, any changes made need to be rolled back again at the beginning of the year. To minimise costs, the financing used should be accessible quickly and without the hassle associated with traditional financing. Invoice and supply chain finance can be combined to boost liquidity in preparation for the season, and to defer outgoing payments until the holiday rush is over.
Use invoice finance to boost liquidity
Leading up to the holidays, businesses need to train temporary workers, purchase additional stock, launch a marketing campaign, and plan and pay for any seasonal events. To manage these additional costs, businesses can avoid taking on debt by using invoice finance to give themselves an advance instead. Specifically, this allows businesses to trade their outstanding invoices for usable cash in hand by working with a financial institution like Fifo Capital.
The financial institution accepting the invoices pays out most of their value up front, typically within just a few hours. Then, when the invoice is due, they’ll collect payment from the customer before paying out the remaining funds, less their fee. With Fifo Capital, businesses can invoice any number of invoices as needed, meaning that the amount advanced can be adjusted very precisely to the needs of the business. However, holiday bills don’t always need to be paid right away, or even during the mad rush of the holiday season.
Defer supply costs until after the holidays
Businesses can defer their outgoing payments to suppliers (who are still paid on time) by using supply chain finance. Instead of making payment out of their own pocket, businesses can instead work with Fifo Capital or a similar financial institution to offer payment to suppliers on their behalf. This allows suppliers to receive payment as usual, or early, if they’re willing to offer the purchasing business a discount in exchange. Most importantly, businesses aren’t obligated to make payment to the financial institution until 90 days after the supplier invoice is issued. In most cases, this means that businesses can defer supplier payments until well after the dust has settled after the holiday season.
This means that businesses can make the preparations they need to now, and get through the holiday season before worrying about their supplier bills. Best of all, they can use the revenues earned during that time to pay for the supplies that they’re stocking up on now. This allows businesses to fully finance the expenses associated with preparing for, and getting through the holiday season without taking out any loans.
By using these financing tools and avoiding the use of debt, businesses can both maximise their returns, and come out of the holiday season with a much cleaner balance sheet than they started with. This is important, because it allows them to start the new year in a better position to access loans and to attract investors more so than competitors who relied on traditional loans.