Avoid Cash Flow Dramas Over Christmas

Posted by on Dec 9, 2015 in Blog

Avoid Cash Flow Dramas Over Christmas

With the exception of retail-based industries, many businesses experience a slow period during the Christmas season. Cash collections are disrupted as businesses and staff leave to take a break. Most schedule special trips out of town during this season or use this period to otherwise slow down and relax.

The problem for many small businesses is that this disruption often affects the normal payment cycle, pushing cash collections as far out as February of the next year, or even longer. This delay in payment can leave many small businesses struggling to survive. If you really can’t wait the extra days and weeks to get paid, try these tips to improve your cash flow during Christmas.

Stay on Top of Your Invoices

Send your invoices out automatically, as soon as the work for your client is complete. Ideally, you invoice clients early enough so that they have time to pay before they leave for their holiday break. Consider offering a small discount for early payment.

You might also want to consider being proactive and asking clients for at least partial payment upfront before the work is completed. This will provide you with at least part of your funds before your client leaves for the holiday.

If you have clients that typically pay close to the due date or a little bit after, don’t be afraid to pick up the phone and give them a gentle reminder of your payment terms. Be careful when you explain the reason for your call and try to be as tactful as possible. Consider having another member of your staff make these calls for you to provide a bit of a buffer between yourself and your client so that you don’t lose out on future business.

Take Advantage of Debtor Financing

Sometimes, there really isn’t a way for you to invoice your clients before they leave for their break. Other times you may find that the bulk of your receipts comes from businesses that have a track record of late payments, so offering a discount for early payment won’t help improve your cash flow. If this has been your experience in the past, you may wish to consider contracting with a debtor finance company.

With debtor financing, a third party takes over your accounts receivable and pays you a set amount up front, usually about 80% of the balance of your accounts. Later, once your clients return from their holiday, they pay a third party, who will then forward the balance to you, minus their fees and commission. Expect fees and commission rates of at least 2% for this service. This service is generally offered in one of two ways: on a confidential basis, where your client isn’t aware that they are paying a third party, or on a disclosed basis where your client is aware that you are not receiving payment on a direct basis.

Consider Alternative Payment Options

If you’ve been offering your clients credit terms, and only been accepting cash and cheques for payment, consider offering more payment options to make it easier to pay. Look into what it will take for your business to begin accepting credit cards such as Visa and MasterCard, as well as alternative payment methods such as PayPal.

Streamline Processes and Control Costs

Boost cash flow by looking for ways to improve your processes and control your costs. Do you need all of the items and services that you’ve been using? Can you cut back on some items and lower your costs, or perhaps delay some purchases until after the holidays, when work will begin to pick up, and your cash flow naturally increase?

Looking for ways to increase your efficiency and lower the amount that you pay for overhead expenses such as insurance and utilities, as well as what you pay your suppliers, will all add up. Even if it’s a small amount, it may be just what your business needs to tip the balance so that you survive the holiday slowdown.

The holiday cash crunch is difficult for many small businesses. With a little planning, there are strategies that can help you to increase your Christmas cash flow and weather this slowdown.