Leading business financing company OptiPay is warning of cash flow challenges ahead for Australian SMEs with many not having enough reserves to take them through the busy holiday season.

“For many Australian businesses we’re coming into the busiest time of the year for orders particularly in the retail, hospitality, manufacturing and logistics industries,” says OptiPay CEO Angus Sedgwick.

“For these businesses it’s essential that they maximise profits and return on investment at this time of the year but we’re finding many simply don’t have the right cash flow strategies in place to be able to cope with the holiday season,” he says.

A recent CreditorWatch survey shows only 66% of small business owners are satisfied with their current level of working capital with many having to lay off staff to deal with cash flow and credit challenges.

OptiPay has seen an 18% increase in requests for invoice financing as SMEs prepare for extra orders and demand heading into Christmas.

“As the holiday rush approaches, companies need to ensure they have the necessary funding in place to meet this increased demand and continue to provide first class service to their customers. The Christmas cash flow crunch is real and there are some strategies that business owners should be thinking about now,” says Mr Sedgwick.

Top tips for businesses preparing for the holiday season

1. Cash Flow Forecasting

Forecasting your cash flow is essential especially when preparing for a busy period of growth such as Christmas. It’s vital to have a realistic forecast so you accurately estimate the cash you’ll need during the holiday season. Knowing when your cash inflow and outflow are the highest can help you set aside a cash buffer for when you need it. It is critical to recognise the difference between cash at bank and sales revenue, because if your business is selling your goods or service on credit terms, the cash from those sales may not be realised at bank for up to 90 days after the sale.

2. Funding

Where is your extra capital coming from? With traditional financing options such as bank loans, lines of credit or business credit cards becoming harder to access in the current economic climate it’s crucial to think about this early.

Alternative financing options such as invoice financing might be a better option for your business. Popular overseas, invoice financing allows businesses to be paid up to 90% of their outstanding invoice value upfront with funds accessible usually within 24 hours. When a customer pays and the funds are received by the debtor finance provider, they’ll remit the remaining 10% minus a small fee to compensate for early funding.

3. Inventory Management

Make sure you don’t get overwhelmed as large orders start to mount up. Plan ahead with an inventory management plan to make sure you have enough stock or the ability to get more at short notice, whilst not sitting on obsolete stock. Inventory management is a critical component of cash flow management.

4. Cut Expenses

Now is a good time to see if you can improve your cash flow by overhauling expenses. See if you can reduce outstanding invoices, negotiate better terms with suppliers or manage expenses more efficiently. Doing this audit now and freeing up working capital is also going to set you up better for success in the new year.

“The Christmas holiday period can be an exciting time for businesses and a lucrative one but it’s vital that owners plan ahead and properly prepare for their funding needs,” says Mr Sedgwick.

“You don’t want to find yourself in a Christmas cash flow crisis so make sure you’re one step ahead heading into the holiday season.”