Avoiding the Christmas cash flow crisis

With crackers, carols, mince pies and mistletoe, Christmas is a wonderful end of the year. But while the treats may be sweet, doing business can be bittersweet.

For small businesses, the Christmas period brings in a large share of annual sales, especially for those in the retail sphere. While this is great, it means that they work at maximum capacity to meet demand, which puts them under a lot of pressure.

This makes the end of the year a challenging time for cash flow. As sales increase they generate costs. Businesses need to invest in staff and materials, and payments cannot be delayed.

Sales aside, Christmas means there are bonuses to pay and deliveries to be made. Staff holidays and Christmas parties mean more time out of the office, which leaves less time to keep on top of admin and finances – invoices included.

Everyone in the financial supply chain inevitably feels the effects of the tightening of the purse strings, which unfortunately means that promised payments can get delayed. With all this in mind, it’s vital for small businesses to keep cash flowing both ways this hectic period, to ensure the Christmas peak brings good tidings.

If you run a small business, the following tips will ensure you’re fighting fit this Christmas.

It’s important to create budgets and set targets. Estimate the expected inflows and outflows, so that the cash flow forecast can be prepared and maintained. You should take into account the factors that may affect the timing of incoming cash, such as payment terms and the potential of late payments. Remember it’s cash, not revenue, that pays the bills.

The budget should then be monitored frequently, so it can be compared to the cash flow forecast, and any problems that may arise can be worked out. Figure out the reason behind shortfalls in cash inflows. If outflows are greater than anticipated, understanding the cause is important.

Delayed invoice delivery means delayed payment, due to the processing time required. Therefore invoicing clients as soon as the work is completed is a simple tactic to ensure that things run smoothly and on time.

E-invoicing technology can be used to make managing cash flow easier, especially with the lack of admin over the holidays. Automating the invoice process is a huge time-saver and means nothing gets lost in the post or on someone’s desk. Here at Tungsten we offer all suppliers who work with us the ability to track invoices 24/7 so you know definitively when you’re due to be paid, as well as an Early Payment mechanism for when that’s not soon enough.

Having a good relationship with suppliers and clients is crucial to smooth operations, cash flow included. Keep them informed of what your business plans are, maybe even send a friendly Christmas card. If you are on good terms, you know who to go to in order to free a blocked invoice and get paid on time.

It’s critical for small businesses to manage money and cash flow all year round, but at Christmas it’s even more important to make sure the right measures are in place. If you get the basics right, you’ll be in a strong position to perform under the pressure of the holiday period, and be in great shape for the New Year.


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