The winter months can be a worrying time for many business owners. Depending on your business, it can be a real challenge just managing the cash coming in, and at the same time juggling what needs to go out.
- The bad news is that with the additional financial pressures in the world right now, public data is showing that late payments are on the rise.
- The good news is that with careful planning, some of these ‘cliff edges’ can be avoided.
So, here are our top tips and professional thoughts on avoiding cashflow issues this winter for your business.
Create a general plan
Make time to create a plan for how your cash will look over the coming months. Ensure your plan is a really simple way for managing:
- Your expected incoming income
- Your expected outgoings
Planning your cashflow can help you spot where problems might occur in the future, and allow you to work out how you might deal with them. Your plan should definitely cover the next few months into 2025.
Do this now: Download our simple Heelan Associates free downloadable spreadsheet from our cashflow blog to plan your cashflow over Christmas and beyond.
Look at your payment dates for suppliers and tax
We don’t want you to become part of someone else’s cashflow problem by not paying other businesses, so you should review your due dates.
You may usually pay bills early, way before they are due, including:
- your tax
- PAYE deducted from your team’s wages
- your key suppliers
However, if your cashflow is tight or unpredictable, now might be the time to just pay ‘on time’ over the festive period. It’s always nice to be known for being a quick payer. So if you need to start paying by the due date rather than early, it might be worth informing key suppliers with an email, just so they know
Do this now: Review the actual dates you need to pay your tax and bills by, rather than when you normally might pay. Consider paying right on time, rather than early. Factor in any bank holidays or staff holidays that may delay payments.
Consider credit cards or overdrafts if required
If your cashflow planning reveals that you need might some short-term lending, consider:
- Using your company credit cards
- Arranging an overdraft
- Investigating other sources of funding
These are short term solutions that can help get over a small crunch point. Credit cards, for example, often allow you to purchase in the month, then you have another period to pay in which there is no interest charged. This can be a powerful solution for a short-term issue.
However, make sure you have also planned how to pay back the credit cards before the interest charges kick in. At time of writing, the current best business credit card deal according to money.co.uk is still a fairly painful 27.1% APR (variable).
Do this now: Identify potential sources of funding and arrange it before you need it. Remember that banks will be closed over the holidays and may have staffing issues too. So, extending an overdraft, for example, may take a few days longer than usual.
Do your Credit Control early (a.k.a. chasing money)
It’s important to be on top of who owes you and how much. If you sell on credit, you may give your customers 14 days to pay, for example.
However, there is often a ‘lag’ in payments around Christmas and the new year in the small business world. Everyone starts to unwind around the 20th December, (a Friday this year) and don’t really return to work mentally until after the New Year (which will be Friday 3rd January at the earliest, more likely Monday 6 January). This can impact on when you get paid.
History and experience also shows as we approach this period, money can be tight for a lot of people. Data from software company Xero shows that 87%(!) of business are typically paid late. Over the festive period, in our experience this is often worse!
Do this now: Diarise to a pre-Christmas chase of any invoices coming due. Personal notes and emails where possible/appropriate tend to have the best impact.
Remember the personal tax deadline is 31st Jan 2025
Your personal tax return is due on the last day of January 2025, and any personal tax you have to pay is also due for payment on that date. So, you will need to prepare your tax return now to understand what your liability is in January.
If you can’t pay, you can ask HM Revenue & Customs for time to pay. These ‘time to pay’ arrangements are available on most business taxes. Again, make sure you get in your request early so an agreement can be reached before the due date.
Do this now: File your tax return early. You still won’t have to pay any tax due / on account until 31st January 2025. If you cannot pay your bill (or any tax debt), don’t stick your head in the sand. Go to HMRC Difficulties Paying and see how you can spread your payments out with a Time To Pay arrangement.
Consider prepayments and deposits
One way to support the Christmas cash pinch can be to draw some money into the business in advance.
If you can raise a pre-sale event, or an ‘early bird deal’ on your product or service to encourage customers to pay now ahead of Christmas, this can really help.
Obviously, you will still need to carefully plan the period after Christmas to ensure you still have the money to deliver the service, but this strategy can really work in the short term.
And finally…. look at your payment terms
This is likely not an immediate fix, but you should consider it for the slightly longer term. Giving your customers a little less time to pay, for example, may give you sufficient “wriggle room” in future.
If you want to give customers credit, consider:
- Tweaking your T&Cs to ask for more money up front
- Adding a card facility to take deposits or earlier payments
- Taking direct debits
- Removing barriers for people paying you, such as online payment options
Do this now: Late payment is a massive issue in the small business world, and no business customer or client will be surprised if you need to change your payment terms to mitigate this. Give some thought to how your customers pay you. Don’t become a credit facility and let your business suffer as a result!
I’m still worried about my seasonal cashflow
If you don’t have an accountant, or feel you aren’t making the most of cashflow improvement options with your current accountant, we’d love a chat about how we can help. Contact us now so we can discuss taking action before Christmas if required.