Australian businesses are being warned to prepare for cash flow challenges this Christmas with an increase in unpaid invoices, rising inflation and staffing shortages.

Internal data from funding solutions provider OptiPay shows the average SME is waiting on average 38 days to be paid and this is likely to be compounded by staff shortages, holidays and supply chain issues exacerbated by lockdowns in China.

“Preparing for the holiday season is a challenging task for any business,” says OptiPay CEO Angus Sedgwick.

“Business owners need to make sure they have a plan in place to manage seasonal fluctuations, extended hours and an increase in activity,” he says.

“The Christmas holiday period is a critical time for businesses to be on top of their cash flow.”

Top 5 tips for maintaining cash flow at Christmas:

1. Create a Cash Flow Forecast

The best way of predicting the future is to look to the past. What happened last year at Christmas time? When were the seasonal peaks and what were the expenses and payments you encountered then? It’s vital to have a realistic forecast so you won’t underestimate or overestimate 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 earlier in the year.

2. Minimise Overtrading Risks

The holiday season can quickly see businesses overwhelmed as they take up large orders they can’t fulfil or are not financially capable of undertaking. This poses a huge risk to cash flow. Plan ahead to make sure your company has enough stock and capital, or the ability to get this even at short notice. Invoice financing is a great option to look at in advance and a facility like this can help buffer those busy periods.

3. Clear Your Inventory

Christmas is a great time to clear overstock of excess inventory and free up cash. Consider repackaging your products to make them more appealing for the holiday season. Or invest in a new marketing campaign to attract a different market of buyers.

4. Build Better Relationships

Every business struggles with late invoices but an important part of this is developing and maintaining strong relationships with clients, customers and suppliers. Use the holiday period to show your appreciation to your long-time customers with exclusive offers or loyalty programs. Send your suppliers a Christmas card or a small gift. Cultivating a good relationship with others will help you gain trust and goodwill and will make it easier to address late or unpaid invoices should they arise. You don’t want your cash sitting with your debtor before the new year starts.

5. Cut Unnecessary Costs

The end of the year is a good time to reflect back and think about what unnecessary expenses you had this year. Sometimes the best way to find cash is to get rid of what you don’t really need.

OptiPay provides invoice financing, a type of business finance that has been in Australia for over 40 years, and one of the most popular types of business finance in USA, UK and Europe.

“Access to traditional funding can be more difficult during the holiday season so the end of the year is a good time for businesses to think outside the box for a better solution,” says Mr Sedgwick.

“Invoice financing, which allows you to be paid up to 90% of your outstanding invoice value upfront is a great option for growing businesses, with funds accessible within 24 hours.”

“When your customer pays and the funds are received by your debtor finance provider, they’ll remit the remaining 10% minus a small fee to compensate for early funding.”

“For many businesses this is a convenient way to get that extra cash they need at this time of the year,” says Mr Sedgwick.