It looks like retailers are in for quite a merry Christmas this year. According to the Australian National Retailers Association (ANRA), the average shopper will spend $1,280 over the festive season, with Christmas sales expected to reach nearly $30 billion.

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But for a large number of SMEs, internal and external factors can lead to a cashflow crisis during the Christmas period. Businesses can tend to struggle with cashflow leading up to Christmas, and then during the Christmas shutdown their revenue declines even further while still having to pay employees their annual leave.

Less cash in, yet still plenty of cash going out.

Without future cashflow budgets and a plan to manage this negative cashflow period, businesses can find themselves in serious difficulties. Fortunately, proactive directors can address the business’s cashflow needs before they become an issue.

It’s important for accountants to check with their clients to make sure Company directors understand:

  • What these factors are;
  • How they’re linked to the business’s cash resources; and
  • How they can be effectively managed.

With the Christmas season fast approaching, here are seven tips to help your clients manage their cash flow during this time:

    1. Invoice early. With a large number of businesses closing down over the Christmas period, it’s common for accounts to be settled late. The earlier you invoice your customers, the sooner you can be paid.
    2. Offer a Christmas discount to customers who pay their invoices before Christmas. 
    3. Make sure your invoice trading terms are favourable. It’s no good having payments due on the 15th of each month and receipts due at the end of each month when cash is tight.
    4. Review accounts regularly, and chase any outstanding accounts promptly. For practical purposes, a sale isn’t a sale until the cash is in your bank account.
    5. Use supplier trading terms to fit in with the cashflow cycle of your business. This may involve paying supplier accounts at the end of their trading terms to keep cash reserves at their maximums.
    6. Don’t hoard stock. If stock isn’t likely to sell over Christmas or the New Year and it’s got a use-by date, consider selling it at a discounted price to get it out.
    7. Have a backup plan to provide finance if needed (e.g. loan account, overdraft, etc.)

Planning to help your clients

The common elements to each of these tips are foresight and planning. You can help your clients by preparing current and realistic financial business forecasts that account for contingencies and unexpected issues. If these forecasts indicate cash shortages, your client will be able to get further advice before the shortages becoming a reality.

Give yourself a break. Literally.

Lastly, and perhaps most importantly, take a break! Business owners often find it difficult to get time away from work. Relax, refresh and get ready for a new year full of opportunities, hurdles and successes.