Unless you are in retail, Christmas can be one of the most challenging times for small businesses in terms of their cash flow. To survive small businesses need to start planning now to make sure they do not have to wait until February before they get paid for work done in November.
Here are some tips to survive the Christmas cash flow crunch:
Make sure that you prepare a detailed cash flow plan that takes you through to February. This will be the starting point to work out whether you are likely to have serious cash flow problems over the Christmas period. Many software packages can help you with your cash flow plan. In addition, the Australian Taxation Office has some useful tips as well at www.ato.gov.au/business. Under the “Starting and running your small business” section they have a lot of helpful tips and strategies.
2. Invoice early
When things are getting a bit hectic before Christmas it can be easy to let administration slip a bit, but remember that you can’t get paid until you issue your invoice – so make sure that it is issued immediately rather than waiting until month end.
3. Offering a Christmas discount
As Christmas approaches it is worth considering offering a discount to customers who pay early or even upfront. This can create goodwill with your customers and also help save you a lot of time in chasing the debt later on.
4. New customers over the Christmas period
It is important that you continue to vigorously check new customers before offering them credit terms over the Christmas period. Credit applications still need to be completed. ASIC checks should also be performed (www.asic.com.au). Although you can perform an ASIC search yourself, it can be worthwhile to hire a professional debt collection company to do so. They can assist in interpreting the results from the ASIC search to make full use of the information in deciding whether to offer a credit facility to a new customer. Brodie Collection Services provide ASIC search services from a low $46.30.
5. Do your homework
Find out if any of your customers are going to be closing over the Christmas period – and whether any of your invoices will be due over this period. If so, talk to them about arranging payment before they close their business for the Christmas break. It may also be worthwhile to offer them a discount to provide an incentive to pay their invoices early.
Alternatively, the business may not be closing but the accounts person you normally speak to is going on holidays. Make sure that you find out who you can contact during this period or your invoice may not get paid until you contact person is back from holidays.
6. Don’t pay your own invoices sooner than needed
Do a review of the terms your own suppliers give you and make sure that you do not pay sooner than needed – unless there is an incentive such as a discount for early payment to do so This will keep your cash reserves to their maximum.
7. Do a post-Christmas review of your debtors.
If by say the end of February you are still having trouble getting some debtors to pay it may be time to escalate the matter. Consider engaging a debt collector who will most likely have a greater chance of getting the debt paid.