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Avoid a Christmas cash-flow nightmare



Advice | Cashflow | Small Business

By Stephanie Zillman

The silly season may be switching into gear, but with the increased costs on both businesses and consumers alike, SMEs must ensure they have a plan of attack at the ready.

As Mark Cleaver from Bibby Financial Services says, many staff take annual leave over the Christmas period, invoices can be forgotten, leaving SMEs open to risk.

“Collections can often be problematic as payables staff take annual leave and invoices often get forgotten. Add to this the traditional slowdown in sales over the New Year, and it is a period of heightened risk of dried up cash flows for many SMEs,” Mr Cleaver said.

“Early preparation is key for the financial health of a business and to avoid a holiday hangover. Identifying potential problems is important to managing key cash flow challenges over the festive season,” Mr Cleaver added.

The following tips from Bibby are a quick guide to managing the silly season and bad debtors:

1. Invoice early and often and request a deposit. Delayed payments from customers can have a serious impact on a business’s ability to grow its sales and profitability. So invoice early to encourage earlier payment. Make it clear what your payment terms are and enforce them. Engaging the services of a credit reporting bureau like CreditorWatch can give you access to their logo, and adds impetus to on-time payments.

2. Deal with potential late payers as soon as possible. As soon as you become aware of a customer not paying, demand payment or consider threatening legal action. Don’t let the customer get the upper hand.

3. Investigate solutions to improve receivables management in the quiet period. The more procedures that you have in place, the more likely your staff will collect invoices on time. Consider running credit checks on all customers periodically and avoid non-payers.

4. Take the time to review credit reports or consider credit insurance. Being a period of cash flow strain for many businesses, debtor insolvencies can cause serious cash flow issues and raise the risk of bad debt.

5. Clear overstocks and inventories now. Significant amounts of much-needed cash can be locked up in unsold inventories, so use them.

6. Prioritise new work – what expenses can be delayed until cash flows are stronger? Consider delaying big one-off expenses over the Christmas and New Year season until more cash is flowing. With business tax due in February, this is another key consideration for SMEs.

7. Examine outgoings and shut down over the holiday period if necessary to minimise costs. If customers stop walking in, then you may as well shut down and save yourself running expenses.

8. Produce cash flow forecasts to assist with identifying precise periods of high cash usage. The better prepared you are to face your expenses and outlays, the more likely you will be able to achieve a smooth cash flow.

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