7 Tips For Managing Cash Flow This Holiday Season

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7 Tips For Managing Cash Flow This Holiday Season

Dec 15, 2023

Forget mistletoe, tinsel and gingerbread — the thoughts of small business owners are more likely to be filled with bookkeeping and inventory concerns during the holiday season. And the pressure is high; about half of all small businesses in the U.S. said holiday sales make up at least 25% of their annual revenue.

This year, the holidays are even more crucial, as businesses continue to combat inflation and the havoc it can wreak on their cash flow. In fact, a recent study released by Xero found that 48% of small businesses reported cash flow issues in the past year. 

To safeguard your business, use the following tips to improve and manage your cash flow this holiday season: 

1. Create a financial forecast for your business

It's easy to get caught up in the more immediate needs of your business during the holiday frenzy, such as managing staffing issues or inventory. But taking a step back and creating a financial forecast can help you predict your cash flow for the holiday season (and beyond) so you can anticipate any financial issues and create contingency plans to address them. 

Statistical forecasting uses historical data, such as the profits and losses from past years, to predict future cash flow. Two types of forecasts that are particularly useful for small business owners are rolling 12-month forecasts and 13-week forecasts:

  • A rolling 12-month forecast provides a longer-term view of your business' finances. With this type of forecast, you update it every month, incorporating the more recent data to keep it accurate. 

  • A 13-week cash forecast is especially important leading up to the holiday season and into the new year. This forecasting model highlights short-term fluctuations in cash flow so you can plan ahead. 

You can create a financial forecast manually, but many accounting software platforms and apps have powerful automated tools that can track it for you. 

2. Tighten your budget

The holiday season can produce an influx of revenue, but it can also be expensive as you face increased supply costs, staffing needs and demand for inventory. To avoid potential cash flow issues, creating a cash flow analysis and tightening your spending is key. 

As a business owner, some ways to cut costs include:

  • Cross-training seasonal staff: While you may need to bring on temporary workers to meet the higher demand of the holiday season, bringing on too many workers can be expensive. Keeping your team lean by cross-training employees in various areas can help reduce your expenses. 

  • Considering outsourcing: Some companies have found that using third-party apps and services to handle tasks like deliveries can decrease costs. 

  • Rethinking your marketing strategy: Instead of a traditional marketing campaign with glossy brochures or billboards, consider digital marketing instead. Using social media ads and paid sponsorships may be more cost-effective for your business. 

3. Invoice early

As a small business owner, the lengthy time between when you send an invoice and when you receive payments can be frustrating. Atradius' Payment Barometer Study revealed that payment terms average 35 days from invoicing

You can maximize cash flow by sending out invoices as soon as work is completed or orders are placed rather than batching all of your invoices at once. Getting your invoices out as early as possible will ensure you have a more even cash flow. 

4. Automate invoice reminders

Late payments are increasingly common; Astradius' study found that 55% of invoices were paid late in 2023, up from 47% in 2022. 

You can save time — and encourage your customers to pay — by setting up automatic invoice reminders through your accounting or invoicing system. These platforms will automatically send your customers reminders to pay the outstanding invoice once they're late by a specific number of days, such as three to five business days.

5. Offer early payment discounts

Another way to encourage your customers to pay promptly is to offer a modest discount for paying the invoice ahead of its due date. For example, you might offer a 5% discount if the customer pays the invoice within 10 days of its receipt. 

It's a popular strategy. According to the Institute of Finance & Management, nearly three-quarters of survey respondents had early payment discount arrangements with their vendors. 

With businesses looking to cut costs, some companies may be willing to pay sooner to take advantage of that discount. 

6. Consider invoice factoring or small business financing

With so many businesses paying invoices late, money can be tight until those outstanding bills are paid. If that's the case for you, you can get the cash you need to get through the holiday season with the following methods:

  • Invoice factoring: With invoice factoring, you essentially sell your invoice to a third-party company. The company charges a fee or percentage of the invoice amount and issues you the remainder as an upfront lump sum. For example, if a client owes you $1,000, you might use an invoice factoring company that charges a 10% fee. It would give you $900 immediately, and the remaining $100 would go to the company for its services. 

  • Small business loan: With a small business loan, you can get a loan to cover your added expenses during the holiday season, such as extra inventory or temporary staff pay. Small business loans vary in amount, and are typically repaid in monthly installments. 

  • Business credit card: Another way to manage your business' cash flow is to use a business credit card to pay for your expenses, such as your utility bills or vendor payments. Using credit will allow you to spread out the cost over several months if needed.

7. Ask creditors for an extension

If you're struggling with cash flow and are worried about missing vendor payments, contact our creditors before your bills are late to request an extension. If you're proactive and communicate your issues honestly and promptly, many suppliers and vendors will be willing to work with you, potentially giving you more time to pay your bill or make payments in installments. 

Getting an extension or different payment terms gives you some extra time to manage your cash flow without overdrafting your account or incurring late payment fees.

Meet The Author:

Maxime Croll

Maxime Croll

Maxime is a Sr. Director at LendingTree focusing on the insurance industry. Previously she was the Director of Product Marketing at CoverWallet, a commercial insurance startup, and helped launch NerdWallet's personal insurance business. Maxime has contributed insurance and business insights to Forbes, USA Today, The Hill, and many other publications.


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