Christmas slowdown pushing SMEs to the brink: How to protect your cash flow today

Small businesses are under the pump this time of year, but experts warn the next six weeks could push companies close to the edge as cash flow challenges emerge from a slowdown in invoice payments, coupled with higher staffing costs.

Prushka Fast Debt Recovery has put a warning out to operators in the lead-up to Christmas, with its Canary in the Coal Mine survey of 600 small businesses earlier in 2017 revealing that while many companies have plans for growth in the year ahead, not enough have a cash buffer to support themselves through leaner cash flow months.

The research also found SMEs waited too long to chase invoices, with 63% of businesses saying they wait more than three months before referring money owed to a debt recovery service.

Prushka chief executive Roger Mendelson says the lead-up to Christmas puts SMEs in a very vulnerable position for cash flow, given “usual overheads remain and salary expenses will be much higher” during a time when finance departments slow down the paying of invoices.

It doesn’t take long for a business to “all of a sudden be in a spiral” and unable to pay their own bills this time of year, which can cause significant problems down the line, especially if a credit default is registered against your business.

“The actual wind-up figures for companies at the moment are historically very low, which is an indication the corporate sector is strong,” Mendelson tells SmartCompany.

However, this makes the end-of-year decision for SME owners all the more important, because lack of planning for leave loadings and Christmas public holiday wages can leave companies struggling for cash at a time when it is difficult to find finance.

“Our recent survey of our SME client base showed that only seventeen percent of them use banks for short term financing,” he says. 

Decades ago, banks would increase overdrafts at this time of year, but there is now much less room for businesses to negotiate with financial institutions or source a short-term loan from the banks.

“Don’t think if there’s an issue you can go to a bank and quickly get an overdraft, that’s not going to happen,” he says.

Here’s a three step Christmas checklist to ensure your business stays afloat and on target as you approach the silly season:

1. Get on the front foot if you do sense a cash flow problem

Assess your cash flow situation now and know exactly where you stand for the months ahead, the Prushka team suggests.

Banks may no longer be offering as many forms of immediate assistance for cash flow issues, but it still pays to ask for your options early.

“If [support from your bank is] not possible, make alternative arrangements,” the company suggests.

2. Have a strong invoicing strategy 

Now’s the time to hit the phones and tie up any loose ends from throughout the year. If you can’t get a payment, Mendelson’s team recommends getting a “promise to pay” whenever possible. Experts have previously told SmartCompany that January and February are a critical time for cash flow, particularly in retail. Prushka recommends marking any invoices with terms that insist on payment by mid-February of next year.

3. Hold off on business purchases 

“Defer any purchases which can be held off until after Christmas,” the Prushka team recommends. The aim of the next few weeks should be to deliver on projects and orders you’ve already received, rather than trying to court new customers or try new projects.

For work already completed, it also doesn’t hurt to give customers an incentive to pay on time.

“Offer discounts on accounts which are paid a few days before Christmas,” Prushka suggests. 

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