How to keep a healthy cash flow over Christmas

Henning Holter, head of business development for Tungsten Network, looks at how to keep the cash flow steady and your head above water over the festive holidays.

Christmas is a time of mirth and merriment, eggnog, bad jokes, and silly hats. It can be a magical end to the year, and a great time for small businesses as it brings in a large share of annual sales, especially for those in the retail sphere. However, it also puts them under a lot of pressure as they work at maximum capacity to meet demand.

The festive season is therefore a tricky time for cash flow. Increased sales indicate increased costs. Staff and materials must be invested in and these do not come for free, nor can payments be delayed.

Sales aside, Christmas means there are bonuses to pay and deliveries to be made. And staff holidays and Christmas parties mean more time out of the office in general, which leaves less time to keep on top of admin and finances – invoices included.

Everyone in the financial supply chain inevitably feels the effects of the tightening of purse strings, which unfortunately means that payments can get delayed. With all this in mind, it’s important for small businesses to keep cash flowing healthily around this hectic period, to ensure the Christmas peak brings good tidings.

Here are my five tips on how to make sure your business is fighting fit this Christmas:

1) Budgets and targets

If you don’t have one already, now is the time to create a budget and set targets. It’s a good idea to estimate expected inflows and outflows, so that the cash flow forecast can be prepared and maintained. This should take into account factors that may affect the timing of incoming cash, such as payment terms and the potential of late payments.

2) Monitoring results

The budget should be monitored frequently so it can be compared to the cash flow forecast, and any problems that may arise can be worked out. Figure out the reason behind shortfalls in cash inflows. If outflows are greater than anticipated, understanding the cause is important.

3) Collecting invoices

Invoicing clients as soon as the work is completed is a simple tactic to ensure that things run smoothly and on time. Delayed invoice delivery means delayed payment, due to the processing time required.

4) E-invoicing

E-invoicing technology can be used to make managing cash flow easier, especially with the lack of admin over the holidays. Automating the invoice process is a huge time-saver and means nothing gets lost in the post or on someone’s desk. If you’ve not yet signed up to your buyer’s e-invoicing programme, it’s well worth investigating now, in time for Christmas. Tungsten, for example, offers all suppliers the ability to track invoices 24/7 so you know definitively when you’re due to be paid, as well as an Early Payment mechanism for when that’s not soon enough.

5) Relationships

Having a good relationship with suppliers and clients is crucial to smooth operations, cash flow included. Keep them informed of what your business plans are, maybe even send a friendly Christmas card. If you are on good terms, you know who to go to in order to free a blocked invoice and get paid on time.

Managing money and cash flow is critical for small businesses at any time of the year, but at Christmas it is even more essential to have certain measures in place. Getting the basics right means that you’ll be in a strong position to perform under the pressure of the holiday period, and into the New Year and beyond.