The economy seems to be showing continued signs of improvement. However, as we approach Christmas 2014, it would be a mistake to start popping those champagne corks just yet. The festive slow down can often hinder growth plans for companies waiting on capital from invoices.
Small firms in the UK should view the run-up to Christmas and the first few weeks of the New Year as a time to be extra prepared for cashflow shortages, according to IGF, an independent commercial finance company.
Cashflow can suffer over Christmas because many directors and other staff responsible for approving supplier payments take holiday during the period. To counter the challenges of the festive season, small businesses need to ensure that they have access to a flexible supply of funding to cover the inevitable delays in payment.
Tracy Ewen, managing director at IGF, warns: “The Christmas period and the first weeks of January are often a critical time for small businesses – almost as many managing directors, clerical assistants and finance department staff are on holiday at this time as during the summer. As a result, payment due dates slip as cheques aren’t signed and small businesses often experience real problems with cashflow. Christmas may be the giving season, but don’t expect all of your suppliers to pay on time.”
“At this time of year, having access to a flexible level of finance, particularly if it’s linked to the volume of sales, can help many business owners avoid having to resort to costly bank overdrafts to see them through or, worse still, the company credit card, both of which can exacerbate their cashflow positions in the short term.”
Ewen continues: “The hangover after Christmas could be felt more keenly by many firms if they come back after the break to find that there isn’t sufficient cashflow in the business to keep them going until those delayed payments and New Year’s new orders start coming through.”
“The problem could have an even greater impact this year as economic growth moves up a gear. The rate of growth expected over the next few months has the potential to make cashflow shortages this Christmas even more uncomfortable than during the downturn.”