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5 ways to overcome cash flow crunch

Any small business owner will tell you how stressful end of year can be when it comes to finances. And with so many people going on leave – and so many businesses shutting down over the holiday season – it’s not unusual for invoices to languish in inboxes well into January.

Start the new year with your finances intact. These five tips will help you avoid an end-of-year cash flow crunch.

1. Invoice early

This isn’t the time of year to let your invoices build up. Keep cash flowing by asking customers for upfront payment where possible, or invoice on delivery with seven-day payment terms.

If it’s too late to change your terms for regulars, notify them when you’re about to send an invoice, and ask for payment before end of year.

2. Get personal

Touch base with customers who are closing over the holidays – before their staff start disappearing for the festive season. This will avoid you chasing outstanding payments and it means you can flag upcoming invoices.

Taking a personal approach keeps your customer onside, and reminds them that your small business has its own bills to pay. If they don’t have a small business background, they may not realise how much your cash flow would be affected by delayed payments over the holidays.

If you’re concerned that chasing payments yourself might impact business relationships, ask an employee to take on this role instead.

3. Forecast and plan

Create a cash flow forecast for your business – what’s going out, what’s coming in and where gaps exist. This will identify any cash flow shortfalls, and help you develop a plan to address them.

As part of this plan, analyse whether it’s financially viable to keep your small business open over the holiday period. For example, if you run a café in the CBD, it’s likely your customers will be away over the holiday period. The smart financial choice may be to shut your doors to save on operating costs – and take a well-earned break.

4. Establish and enforce T&Cs

If you don’t already have payment terms and conditions, make it your top priority. Ts&Cs should outline when you’ll issue invoices, if deposits are required and your payment deadlines. Talk to your accountant, lawyer or business advisor to determine the best way to implement these legal requirements for your small business and industry.

Once you’ve established your terms and conditions, be prepared to enforce them. You don’t need to jump straight to threats of legal action or debt collection if payments are late. But if an invoice remains unpaid, you’ll need to take action to protect your business. If necessary, consider getting a debt recovery service to help speed up payments.

5. Vet new customers

End of year can be a great time to get new customers on your books. But don’t let the promise of holiday income cloud you from assessing new clients thoroughly.

Do your homework and run your normal credit checks on prospective clients. If your new customer asks for credit terms, weigh up the risk and protect your business by:

  • Having them sign a credit application that includes their ABN and ACN.
  • Include clauses in your terms and conditions covering non-payment. This will make the process easier if you need to recover a debt down the track.
  • Set a credit limit at the lower end of the scale. You can always negotiate new terms if they become a regular customer.

Need help managing the holiday season cash flow crunch? Talk to our friendly team on 1300 882 867 or apply online for a small business loan now.


The information in this post is provided for general information only and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisors. Although every effort has been made to verify the accuracy of the information as at the date of publication, Prospa, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information for any reason, including due to the passage of time, or any loss or damage suffered by any person directly or indirectly through relying on this information.

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