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Businesses warned about Christmas cash flow drying up

Small businesses are urged to start preparing for the Christmas shutdown period now to avoid traditional post-Christmas cash flow shortages that are often to blame for a spike in insolvencies in February.

As business shuts down over the Christmas period and the normal payment cycle halts, start-ups and small businesses can find it difficult to get their invoices paid. To further compound the situation many businesses faced additional costs leading into Christmas for example holiday pay Christmas parties and gifts.

Many businesses face the danger of insolvency due to this slowing down of their incoming cash flow during the Christmas period. Start-ups in particular must be prepared. As new businesses, they are even more vulnerable because their turnover is less consistent and less established.

Small and recent start-up businesses must plan ahead to protect their financial situation, attempt to keep cash flow as steady as possible and try to maximise turnover.

Prior to the Christmas period, it is a good idea to secure additional working capital, or to think about selling any non-core assets in order to inject funds into your business. A rolling cash flow is another sound way to ready your business. By forecasting three months in advance, you are able to identify and plan for periods where cash flow might be unstable or more strained than normal. That way, you ensure that potentially tough or slow periods like Christmas don’t creep up on you, and you can make certain that you are equipped to manage tough times and allow enough buffer to ride out any rough patches.

Having a contingency plan in place is vital. Thorough preparation and trying to anticipate your best response in a worst-case scenario – like losing a major customer – helps reduce that risk. Small and medium businesses must be cautious of relying too heavily on just one customer, and are advised to minimise the risks associated with situations where one major customer may make up a large portion of their revenue.

Alternatively, you could consider a Cash Resources debtor finance facility. This gives you access to up to 80 percent of the value your invoices within 48 hours, enabling you to avoid the Christmas cash flow crunch.

If your cash flow over Christmas has dried up because debtors aren’t paying you on time, sign up to CreditorWatch to expose bad debtors and be alerted when the businesses you trade with fail to pay.

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