Christmas Blackout Period – What is it?
In the months of December to March, SMEs often face working capital shortages otherwise known as the Christmas Blackout Period. Contrary to popular belief, increase in sales during the holiday period does not directly translate to increases in working capital for business-to-business models. During this vacation blackout period, most companies see their bills stack up while payment inflows become overdue from customers.
The origin of the problem can be traced to companies restricting cash outflows. During this time period most companies preserve their cash in order to pay wages, and payment to suppliers take the backseat. Debtors try to use the payment term to its fullest without being penalized with extra late fee. When debtors fail to pay you, you can’t pay your own suppliers who might then implement a credit stop. This turns into a chain of events felt across the industry as a whole not just one sector.
This period can even be a precursor to insolvency and cash shortages, where businesses who managed to survive until February find themselves on stop credit with suppliers or unable to pay wages, leaving them with outstanding credit. As a result finding solutions that help you prepare for this period is crucial; the best foresight is the best hindsight.
Avoiding Cash Outflows During Christmas Blackout Period
You can plan ahead of this anticipated Christmas Blackout period through several strategies.
1. Requested for extension from your supplier
The first, request your suppliers for a payment extension during this period. By negotiating longer terms ahead of time your suppliers will not be caught off guard.
2. Forecast your cash flow
Secondly, when forecasting cash flow, add a cushion for this period by adding extra cash to be used to pay bills that are due early.
3. Implement programme to obtain early payments from your customers
Incentivise customers who typically leave invoices outstanding for entire credit period by offering early payment discounts that will motivate them to get the invoices paid early to better help manage your accounts receivable.
Managing Christmas Blackout Period
For any situation it is important to have a back up plan in case you find yourself in need of funds immediately. That is why it is important to set-up active accounts with online invoice discounting services, like Invoiceinterchange. This simple and convenient service can provide an alternative financing option to your business by freeing up cash flow in a crucial time like this.
The holidays is a time to be jolly; enjoying meals with your loved ones and celebrating the new year. Let’s make sure we can keep it that way by preparing ahead!