Blog: Have businesses got the cashflow for the Christmas economy?

Colin Walls
Colin Walls

Colin Walls, Head of Global Transaction Banking at Bank of Scotland discusses how the retail and other industries can keep on top of cashflow while meeting demand during the festive season.

It might be the most wonderful time of the year for consumers, but for many businesses in the run up to Christmas and throughout the January sales, meeting an increase in demand can put serious pressures across all business functions.

To take advantage of the festive rush, retailers, bars, restaurants, their supply chains and other industries need to be prepared if they are to seize opportunities while also managing cashflow.

Throughout the supply chain, businesses need to ensure they have both the capacity and infrastructure to produce goods and fulfil orders, as well as the working capital to fund a sharp spike in supply and demand.

2016 brings further challenges

This year, there are added pressures for firms and finance teams. The weaker pound has been welcome news for exporters, but importers and manufacturers are suffering from an increase in the price of goods and materials from abroad.

There have even been high profile disputes between suppliers and stockists featured recently in the media, as the weaker pound has increased input prices, resulting in thinner profit margins for some UK manufacturers.

Meanwhile, the introduction of the National Living Wage earlier this year will also put further pressure on the business cost base as they hire temporary seasonal staff.

It’s therefore essential that firms make the most effective use of the funding options available to them so they don’t miss out on business. However, firms can often overlook the full range of solutions, with the majority using only loans or overdrafts to fund increases in stock.

Be aware of all lending options

For example, both invoice finance and asset-based lending can be valuable when facing seasonal surges like Christmas and the January sales period.

Invoice finance works by releasing cash currently tied up in outstanding customer invoices. Invoice finance options allow you to release up to 90 per cent of the value of your invoices, typically within 24 hours, so instead of waiting 60 days to receive payment, businesses can improve their cashflow straight away.

This can be particularly helpful over the Christmas period, when keeping on top of cashflow can be made even more difficult if your business traditionally shuts down over the Christmas period.

Asset-based lending, meanwhile, allows businesses that have capital tied up in stock, plant or property to use these assets to access cash. Money can be released from these assets into the business, which can then be used to buy more stock or materials to create goods.

Yet the latest Lloyds Bank Business in Britain report found that awareness of these alternative forms of lending remains low.

Only 40 per cent of SMEs were aware of invoice finance, while 34 per cent were aware of asset-based lending.

Similar to invoice financing is supply chain finance, which is driven by the buyer instead of the vendor. The buyer’s bank provides cash advance to suppliers to ensure they get paid in time. Debt is repaid when the buyer settles the invoice. Suppliers pay the fee but get greater access to working capital.

Speaking to a trusted adviser can help those businesses as they seek to take those opportunities without potentially damaging impact on their cashflow, allowing them to focus on having the right products and prices to appeal to consumers, rather than on the finances they need to protect their working capital.

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