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It's not hard to see why most SME's dread the holiday season between December and February (especially February when cash flow reserves are under real pressure), but there are some steps the average business can take beyond just trying to make more sales to help them get through the squeeze.

 

For many businesses, December can be a big month as customers rush to wrap up the year, but the summer holidays through January (and the slow return to work) create a bunch of challenges. It's not uncommon to hear people say: Just write off January , but as any business owner knows, it's not just the sales that suffer in January payments do too.

The Interface Financial Group's Gary Wong says it's a rock and a hard place for many business owners.

Accounts departments and customers are away on holidays, so invoices don't get paid. And because they're on holiday, sales dry up too. Getting paid can be a problem after 24 December, as can making any sales sometimes all the way up to 25 January, depending on the business. All this is compounded by the fact that businesses still have to pay salaries, and fixed costs like loan repayments, license fees and rent don't go away either. December sales might be enough to get you through January, but cash flow really dries up in February.

 

As if that wasn't enough, the Inland Revenue Department expects its taxes on a number of fronts in January and February. Goods and Services Tax (GST) payments, provisional tax payments, terminal tax payments and employer deductions are all due.

Planning for the holiday cash flow crunch is obvious advice, but if you've had a slower year than usual, and some unexpected costs crop up in the year as they inevitably do it can be hard to be completely prepared. Knowing what's coming and being in a position to prepare for it are two different things.

Here are some last minute tips to help SME's get through the holiday season cash flow crunch:

1. Make an extra effort pre-Christmas to collect debtors. The closer to Christmas it gets, the less likely you are to get the cash.

On the 14th of December, send a friendly email reminder saying something like: It's almost the 20th of the month when your payment is due. For your convenience, a copy of your invoice is attached if for any reason this invoice cannot be paid, please let us know . If the invoice is not paid, get on the phone on the 21st of December.

 

2. Monitor invoices that are due in January. Talk to the customer's accounts department to ensure they have received the invoice and it will be processed.

Gary says it's a good idea to get your invoice off to the client as soon as the work or order is completed. Invoices have to get signed off and that means they go through some form of internal process. At a time when so many people are on holiday you don't wait until the end of the month to do it invoices can very quickly end up in the in-tray, inbox or mail pile.

 

3. Reduce stock holdings to bare minimums over holiday season to be as liquid as possible. You're going to need the cash. But don't forget to plan for your New Year requirements to ensure that your suppliers have the stock you need available when you need it in the New Year.

4. If you are considering accepting a large customer order or commencing a large job, negotiate an upfront deposit to assist funding those upfront costs which would not have been collected until after completion.

5. Staffing is a major cost for many businesses. Review your staff rosters and only have the staff available who are absolutely necessary to manage anticipated trading levels. Encourage staff to take their holidays over this period so that they are available during peak trading periods.

6. If you have identified there may be a cash shortfall, the first things you should be doing is going to your key funding partner, for example your banks or shareholders, to get an increase in your facility. If you are unable to achieve that kind of facility, then a debtors finance facility with IFG can help address those shortfalls.