Christmas Cashflow - Protecting Your Business From Debtors During The Festive Season
Like it or loathe it Christmas is around the corner. Everyone will see an increase in their spending over the next 5 weeks, with reports suggesting that it will take the average family until June 2017 to clear their Christmas debts. Even businesses are struggling, with the average payment period for debts from December being 2-3 months and February being the worst month for cash flow as a result. What is more worrying is that more than 11.6 million Britons are still paying off last Christmas’ debts with around £6bn owed!
So what does this mean for businesses and what steps can you take to protect yours, without turning into Scrooge, of course? Here are our top tips:
1. Don’t just join the queue, be at the front of it
Every business ought to have clear payment terms and, as you complete work, you should stick to those terms and bill accordingly. Don’t wait to send invoices. Most people bill at the end of the month. Therefore, it is best to get in early to ensure your bill is the first in line to be paid. Don’t let procedures slip as everyone winds down for Christmas. The longer you wait to invoice, the longer it will inevitably take for payment to arrive.
2. Don’t hope for a Christmas miracle - monitor and communicate
Manage your accounts payable closely. Speak to clients and customers so that you know when to expect payment and, if it doesn’t arrive, chase. If you think that there is a problem, deal with it head on. Be firm but be polite. Seek advice if you are not sure about your options. Don’t wait until the New Year and hope that payment will turn up in the meantime.
3. Eat, drink and be merry
Christmas is a perfect time to network and meet with clients and customers and see how they are performing. Monitor the performance of those with whom you are trading. Consider getting credit checks, particularly in respect of new customers or customers placing significant orders, to ensure that they can pay.
4. Christmas is a time for giving (well, sort of)
If a client approaches you and advises that they are struggling to make payment, an approach which is too aggressive may cause more harm than good. It may actually tip a business over the edge and into insolvency where it could otherwise be avoided. Consider repayment plans if your own cash flow will permit. Whilst you may not be in the business of lending, you never know when you might similarly need this kind of support.
5. Black Friday Sales?
Some businesses offer discount for early payment. Again, it depends on whether your business and cash flow will permit, but some cash in the bank can be far more valuable than no cash in the bank.
6. Avoid the urge to splurge
Manage your payments out as well as those coming in. Avoid the urge to bulk buy unless necessary. Identify and plan for any additional expenditure, whether that is as a result of the office Christmas closures or staff leave. Have a contingency fund, if possible, in case invoice chasing doesn’t produce the desired result.
7. Manage staff
Staffing is a huge, but necessary, cost for any business. It does, however, need to be managed carefully. Arrange your staff rosters as necessary and encourage staff to take leave during quieter periods.
Christmas is as good a time as any to sell your services. A new customer can cushion the blow of a bad debtor. It is also a good time to be innovative, offering ‘gifts’ with sales to increase revenue.
Have a contingency plan for the New Year to deal with debtors and make sure you don’t leave it too late. Get advice promptly if you have any concerns.
10. New Year's Resolutions
Review as soon as the Christmas break is over and pick up any invoices that need chasing early.
If you are worried about cash flow over the festive season, whether in terms of payments coming in or going out, our Commercial Disputes Team can provide you with practical advice to get you through the Christmas period.