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Christmas cash flow – is your business in danger of the January blues?

It’s all too easy to take your eye off the bauble over the festive period when running a business only to find the bank account is not looking sparkly as your Christmas jumper at the end of the month.
When examining cash flow trends in SMEs – it’s clear that December and January are danger months in terms of making sure the cash availability can cover outgoings.
Here’s a few considerations for this month and January to make sure you don’t come back to your business after the Christmas break with more of a hangover than you intended:

 

Tax payments
If your financial year runs from April to March your corporation tax will be due on 1 January. This is likely to be a major payment from your business and one that you cannot easily negotiate on with regards to payment terms.
If this is going to cause you an issue – consider action now. This might involve looking at temporary funding options – e.g. access to an extended overdraft or more long-term solutions such as invoice finance.

 

Days Sales Outstanding (DSO)
According to our data gathered over many years working with SMEs, we know December is always the toughest credit control month. The amount of time invoices remain unpaid is highest in December – with an average of 53 days to pay an invoice – over three weeks after they will have fallen due if you operate on 30 day terms. This means, if your business operates on 30-day payment terms, best case scenario is that the bulk of your payments will be over three weeks late. This knock-on effect to cash flow can cause major issues when we are also faced with early salary payments to staff, client gifts, Christmas entertaining and Christmas bonuses (if you’re feeling generous) and several bank holidays/staff holidays which will affect your ability to maintain effective credit control systems.
We’re definitely not advocating the Scrooge approach but now, pre-Christmas, is a good time to look at the end of December and how this will impact January so you can be aware of any issues before they happen which will ease your stress levels at the start of the year.

 

Order and business pipeline
December and January are notoriously slow months for orders and new business and, if you are a business which takes depsosits on orders or ecommerce this means the effect on the bank account can be immediate. If you invoice customers on standard 30 day terms then the effect will likely be felt at the end of January.
To mitigate for this have a look at your overheads and outgoings planned for January now. Is there anything that you can delay purchasing until February or can you look at payment options for bigger ticket, one-off costs from the business?
Staggering outgoings and making sure you’re aware of the impact a delay in order income will have on your business now rather than the last week of January will mean you come back refreshed and in control – so you can focus on generating more business to get 2020 off to a great start.

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