Australian SMEs warned of Christmas cash flow challenges

Australian SMEs are being cautioned about impending cash flow challenges during the busy holiday season, particularly within retail, hospitality, manufacturing, and logistics sectors.

Angus Sedgwick, Chief Executive Officer of OptiPay, has highlighted concerns that many business owners are not sufficiently prepared to manage their cash flow effectively during this crucial period. "For many Australian businesses we're coming into the busiest time of the year for orders, particularly in the retail, hospitality, manufacturing and logistics industries," Sedgwick stated.

This lack of preparedness could potentially impact companies' profitability and return on investment throughout the holidays. "For these businesses it's essential that they maximise profits and return on investment at this time of the year but we're finding many simply don't have the right cash flow strategies in place to be able to cope with the holiday season," he added.

The concerns are supported by a recent survey from CreditorWatch, which indicates that only 66% of small business owners are satisfied with their current level of working capital. The challenges associated with cash flow and credit have forced many to consider staff layoffs as a potential solution.

In response to these anticipated pressures, OptiPay has noticed an 18% surge in requests for invoice financing as companies gear up for increased demand ahead of Christmas.

Mr Sedgwick emphasized the importance of securing appropriate funding to maintain quality service during the festive rush. "As the holiday rush approaches, companies need to ensure they have the necessary funding in place to meet this increased demand and continue to provide first class service to their customers. The Christmas cash flow crunch is real and there are some strategies that business owners should be thinking about now," he advised.

Key strategies proposed by Sedgwick include cash flow forecasting, which he called critical for preparation during a growth period such as Christmas. "Forecasting your cash flow is essential especially when preparing for a busy period of growth such as Christmas. It's vital to have a realistic forecast so you accurately estimate the cash you'll need during the holiday season," he recommended.

He also urged businesses to consider alternative funding sources, as traditional financing becomes more difficult to access. "Where is your extra capital coming from? With traditional financing options such as bank loans, lines of credit or business credit cards becoming harder to access in the current economic climate it's crucial to think about this early," said Sedgwick. He pointed to invoice financing, a method popular overseas that allows businesses to receive a percentage of their invoice value upfront, as a viable option.

The importance of inventory management was also highlighted to avoid being overwhelmed by large orders while preventing an excess of obsolete stock. "Inventory management is a critical component of cash flow management," noted Sedgwick.

Lastly, Sedgwick suggested auditing and cutting expenses to improve cash flow, advising businesses to reduce outstanding invoices and negotiate improved supplier terms.

"The Christmas holiday period can be an exciting time for businesses and a lucrative one but it's vital that owners plan ahead and properly prepare for their funding needs," Sedgwick cautioned. "You don't want to find yourself in a Christmas cash flow crisis so make sure you're one step ahead heading into the holiday season."