Getting ahead of seasonal cash flow disruptions

09/10/2023

With the festive season fast approaching, it’s never too early for your business to begin planning for potential seasonal cash flow disruptions. 

For some businesses, a spike in sales and slower customer payments can place a real strain on cash flow. For others, sales may drop, which provides different challenges.

By forecasting and preparing early, businesses can minimise the impact of restricted cash flow over this period and beyond:

Review historical data trends

Analysing payment patterns from previous years will enable you to estimate when slowdowns or delays may occur. If your customer base has remained fairly constant, you can pay particular attention to key accounts over the run up to Christmas and into the new year.

Look too at past cash flow forecasts, which may indicate peaks and troughs and enable you to plan ahead and make necessary provisions.

More widely, identifying weeks or months historically where receivables slowed, stock levels were high and/or cash flow became stretched can then allow you to work out projected fluctuations for this year and plan accordingly.

Tighten up your internal processes

Late invoices will inevitably lead to late payments. It’s important to make sure your internal processes are robust, ensuring there are no potential bottle necks to getting invoices issued as quickly as possible. Make sure you have adequate cover over the holiday period to continue raising invoices and, if invoices are sent by post, it could be worth considering email or another electronic delivery system to speed the process up and ensure it gets to the right person within your customer’s organisation.

Run cash flow scenarios and contingency plans 

Forecast best and worst case scenarios for cash flow in and out of the business over quieter periods such as Christmas. Identifying triggers, like low cash reserves, and planning what you’d do to tackle each situation will enable you to be prepared and have contingency plans ready.

Find out more about cash flow forecasting – https://www.hiltonbairdfinancial.co.uk/your-guide-to-cash-flow-forecasting/ 

Understand your options

It can be worthwhile to do the research up front into potential funding options to smooth over cash flow gaps, exploring these options before any potential trigger points hit. Having lines of credit available such as an overdraft, or loan, can be a useful short-term solution for such periods, but funding tools such as invoice finance and asset based lending provide more flexibility.

These solutions can ease the delay in waiting for payments from customers as the finance provider advances cash against your invoices within 24 hours of their issue. This can help to bridge any cash flow gaps between raising an invoice and getting paid by customers.

Speak to your suppliers

With many businesses shutting down or working with a reduced team in the run up to and over the festive period, it’s worth ensuring you have adequate stock for the period and beyond to avoid any potential delays to your production lines. The same goes for distribution lines – will you be able to deliver goods throughout the period or will there be times when this won’t be possible, and what are the implications of this for your customers and also your cash flow?

Likewise, will you have the resources in-house to sign off payments to suppliers to ensure you don’t have any delays in supply if your account is put on hold, for example?

Be upfront with customers

This is a perfect opportunity to contact customers to pre-emptively discuss whether they would like to place any orders before or during the period. As well as assisting with your forecasting and planning, it can be a way of driving sales.

Additionally, it’s worthwhile to proactively contact key accounts to verify if they will be able to make payments to terms as the festive period ascends. Ascertain whether they will have the resources to approve and pay your invoices over the quieter periods and potentially discuss strategies like prepayments or accelerated schedules as a workaround to suit both parties.

With a little planning for seasonal slowdowns, it is easier to pre-empt and reduce the impact of any potential disruption on your business’s cash flow, over the holiday period and beyond.

With over 25 years’ experience of supporting UK businesses with their cash flow management, our services are designed to assist with varied requirements. Find out more about how we can help your business.