The holiday season can be a double-edged sword for SMEs: you need to take time to celebrate the year that was, while having to juggle unpaid invoices and stagnating cash flow. 

CreditorWatch research shows that Australian businesses, on average, will experience a 20% drop in revenue in February following the holiday period slowdown. If you’re starting to feel the pinch, you’re not alone, with CreditorWatch’s Business Risk Index indicating that it will be a tough Christmas across many industries.

Thankfully, there are a range of pre-emptive measures businesses can take today to put them in a more competitive position and keep cash flow smooth over the festive season.

Ten ways to keep cash flow smooth over Christmas and New Year

1. Strategic budgeting

Before the holiday season really kicks in, the first step to ensuring smooth cash flow is to revisit your budget. Identify areas where you can afford to spend more, such as seasonal promotions to clear out stock, and areas where you can afford to pull back, such as an all-expenses office Christmas party. Through strategic budgeting and better allocation of resources, businesses can better protect their cash flow.

2. Proactively manage invoices

You can’t let outstanding invoices linger. Timely communication can help to ensure your cash flow remains uninterrupted. Otherwise, you risk waiting until mid- to late-January (at the earliest) for invoice payment. Take a proactive approach to follow up on any pending payments before your customers go on leave. Where possible, you may be able to set up automated reminders for your clients regarding upcoming and/or overdue invoice payments.

3. Company credit checks for new clients

Speaking of proactive steps, running a company credit check on potential clients is a no-brainer when safeguarding your cash flow. Business credit checks provide valuable insights into a client’s financial stability, payment history, and overall creditworthiness, enabling you to make informed decisions before entering into financial agreements.

Checking a company’s credit report allows businesses to identify potential risks in advance. You may choose not to engage with a risky client or take proactive measures – like adjusting payment terms if a new client has an adverse event on their credit file, such as a late payment. This extra step in onboarding new clients may help contribute to more predictable and sustainable cash flow.

4. Monitor payment behaviour

Stay ahead of the game by utilising tools that monitor the payment behaviour of your customers. If you can identify clients with poor payment behaviour now, you can adjust your credit terms accordingly. Keep in mind that even your most punctual clients could be facing challenges repaying other suppliers, so having full transparency concerning their payment behaviour will always be beneficial for cash flow management.

5. Clear unsold stock

Inventory management is crucial for healthy cash flow, so it’s worthwhile getting on top of your unsold stock before the holiday period begins. Reducing excess inventory frees up capital to reinvest in more profitable areas of your business. Identify slow-moving or obsolete stock and push forward with strategies to clear it efficiently. Examples could include targeted promotions, bundle deals, or even a Christmas clearance sale.

6. Early payment discounts

Another way to potentially see a few more invoices paid in full by the festive season slowdown is to offer incentives to customers, such as early payment discounts. Not only will this prompt your clients to make a timely payment, but it could also improve your client relationships.

7. Build a cash reserve

This option may be easier said than done for some businesses, but set aside a portion of your profits as a cash reserve, specifically for the holiday season (where possible). A financial safety net can help cover unexpected expenses or fluctuations in cash flow and provide you with the peace of mind that you can continue operations on a strong footing in the new year.

8. Streamline operations where possible

If your business is bracing itself for a drop in revenue, look at your internal processes and identify areas where you could improve efficiency. If there are areas of the business that can be automated, there has never been an easier time to optimise your operations with helpful technology.

A good example is automating your accounts receivables by integrating automated systems into your AR function.This action is one of the easiest, most cost-effective ways to quickly improve your cash flow as you optimise every function, from client invoice generation to the collection process.

Automated collections tools simplify the payment process for customers through ‘pay now’ buttons, links in emails, and SMS reminders. These tools can also consolidate multiple payment due dates into a single reminder for increased convenience – encouraging clients to pay early. Further, automated payment reconciliation can quickly identify and rectify discrepancies, preventing delays in cash flows.

9. Don’t forget about tax payments

It’s essential not to overlook your Business Activity Statements (BAS) or GST/PAYG instalments come February’s due date. If your business sees higher sales during the holiday season, don’t forget to set aside a portion of your revenue to cover these potentially-higher costs. You can prevent cash flow problems when those payments are due by planning ahead now.

10. Hold off on major purchases

Business financial reserves can deplete quickly during the holiday season. If there are significant purchases the business was planning on making, such as new equipment or new hires, consider holding off until the new year (unless those purchases directly contribute to holiday sales or revenue). Prioritise only what is necessary over the next few months so that the business may maintain a stable cash flow.

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