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The Survival Guide to Seasonal Cash Flow Problems

Most businesses experience seasonal peaks and troughs in cash. In some sectors, this is obvious – a retailer or hotelier in a resort will obviously be vastly busier in the summer – but even some manufacturers can experience significant fluctuations. It’s the latter businesses that are more at risk: those who have not learned, through many bitter years, to safeguard their profits during the good times to cushion them during the bad. So what can you do to make sure you’re able to cope during the next seasonal downturn? Here are six tips.

1 Make sure you’re paid faster.

Accounts receivable count for very little until you’ve actually received the money. If your customers pay late, you still have to pay your rent, your staff and your suppliers, and the result can be a cash flow crisis. So how can you guard against these cash flow problems?

First, make sure you invoice right on time. Apart from anything else, if you appear casual about requesting money, your customers are likely to be casual about paying. Secondly, agree clear and mutually fair terms of business, and start pursuing debt diplomatically but firmly the moment payment deadlines are breached. Some businesses choose to incentivise customers who pay quickly with a small discount and penalise those who pay late with interest charges, whilst others opt for invoice factoring and discounting.

This innovative finance method, available from alternative lenders, allows you to borrow up to around 85% of the value of your invoices the moment you issue them. The loan and charges are then repaid when your customers pay you. With invoice discounting you retain control of your own debtor ledger, whilst with factoring the business finance company assumes responsibility for credit control and assigns experienced professionals to secure early repayment and minimise the interest you pay.

2 Negotiate effectively for every deal.

If you can reduce the cost of every purchase, you will transform your cash flow when sales slump. Your suppliers may also be experiencing seasonal problems and could be happy to agree a discount for a bulk purchase or early payment. Alternatively, you could try to negotiate extended payment deadlines, making your life easier when your own customers pay late.

3 Don’t pay your bills before they’re due...

Unless you receive a discount for doing so. We’re not suggesting that you pay late, as this can damage your relationships with your suppliers as well as negatively impacting your credit score. But if you’re struggling to balance your books and you have 30 days to pay, why pay in 10 or 15? Of course, if you can negotiate a 5% or 10% discount for doing so, then paying early makes very good commercial sense.

4 Generate new sources of revenue.

Needless to say, controlling costs is only half the equation. If you can generate some new business, that’s a game-changer. Consider your business area and the relationships you have with your customers, and examine whether you can leverage those relationships to diversify into new sectors and launch new products or services.

5 Rebalance your borrowing.

Interest rates remain at a historic low, though banks are reluctant to lend following the 2008 financial crash. If you have outstanding borrowing, it pays to shop around to see whether you can better the interest rate or extend the term to reduce monthly repayments. However, do bear in mind that the longer the term, the greater the interest you will ultimately pay.

6 Talk to an alternative lender.

When your bank won’t help, an alternative lender probably will. If you hit a sudden cash flow crisis, an emergency business loan can give you the funds you need, with money inside your account in under 24 hours. Alternatively, for longer-term borrowing, asset-based finance allows you to borrow against the value of your premises, plant and equipment. Finally, invoice finance, as explained above, can be the gift that keeps on giving, enabling you to borrow against the value of every invoice, the moment it’s issued.



Author information

Carl Faulds

Managing Director at Cashsolv

As Managing Director of Cashsolv, he offers advice and support to overcome cash flow problems and identify possible underlying problems that can be addressed to ensure a positive future for your business. Carl continues an ethos of working with distressed businesses to help them overcome their financial problems.