As we head into the final quarter of the year, the Christmas period looms. Normal cash cycles are replaced with peaks and troughs not seen at other times of year. For retailers, it’s time to stock up; the anticipation of ringing registers is high. For wholesalers, the festive season brings a sharp increase in sales, often matched by an equal downturn as the season peters out. Wholesaler CFOs have the considerable challenge of steadying the ship as the Christmas winds blow. Here’s how CFOs can head into the festive period with their eyes firmly on the bottom line.
1. Review cash flow trends
If this is your first year in a new company, look at past years’ trends to learn when and why the business experiences cash flow highs and lows. With the benefit of hindsight (and good data) you can forecast when the slumps are going to hit and aim to retain cash in anticipation. You’ll be better prepared to eliminate unnecessary expenses and take advantage of opportunities to purchase better, by, for example, stocking up when prices fall or taking advantage of early bird discounts.
2. Disciplined expense management
Christmas time brings seasonal expenses - extra casual staff, the office Christmas party, new marketing campaigns. Some staff will be due a bonus at Christmas time, others will cash in their holiday leave. Forecast for the extra expenses, then do everything possible to retain or bring in more cash. (The tips below will help with this.)
Some entertainment expenses may attract fringe benefits tax. Check the taxation requirements before making your Christmas party plans so you can minimise your tax liability or at least be prepared to meet your tax obligations.
3. Use technology to get aheadNew technology can deliver efficiency improvements within the first month on the job. In the lead up to the busy Christmas period, audit your accounting processes to see where technology could help to save labour time and improve the bottom line. Cloud accounting solutions keep your finances up-to-date and allow you a bird’s eye view of your accounts at any time, from anywhere. With free trial periods on offer, you could be enjoying returns for no cash investment at all.
This is a prime time of year to double down on your efforts to invoice immediately. Work with the sales team to get all the invoice details into your system quickly so you avoid invoicing delays. Aim to send your invoices within 36 hours, especially as you close off November, otherwise your end-of-month December payments can easily drag into January and February as your customers close shop for the holidays.
4. Invoice quickly
5. Chase receivables early
The antidote to late payments is early chasing. The benefits are undeniable: cash returns to the business faster, and you have the cash on hand to meet your own expenses. A smart way to foster your prompt payment expectations is to send a pre-reminder . A few days before payment is due, send your debtor a friendly note that their invoice is due soon. Provide your payment methods and thank them for their business. You’ll be surprised how many customers pay early after this one simple action.
Reel in late payers by consistently reminding them to pay. Your business will be paid faster than those that let their payments slide under the radar. The best reminders consolidate all overdue amounts into a single reminder so the debtor understands their total debt. Then make it easy for debtors to pay by offering online payments. Schedule second, third, fourth and fifth consolidated follow-ups for the slow payers. While this can seem like a heavy load for your accounts team, try automated reminders - they’ll do all the heavy lifting for you.
6. Conduct a credit check on new customers
Head off bad debts that strangle your cash flow by avoiding them in the first place. Minimise the risk of bad debt by conducting a credit check before offering credit terms to the new customers that arrive every Christmas season. Credit bureaus offer comprehensive checks of a business’s credit transaction history and will identify customers with a high likelihood of making a late or default payment.
7. Make it easy to collect money
A lot of wholesalers are slowed down by archaic collection methods. Banking a cheque is a high-touch manual process that costs your business in time and labour. Collecting money online is the simplest solution for your staff and also your customers. A ‘Pay Now’ button on invoices and reminders provides a visual prompt to pay and immediate access to make a deposit in your bank account. Your staff can be on holidays but your business can always be collecting.
8. Consider a product bundle on overstocked items
You’ll have a keen eye on stock levels in the lead up to Christmas. Stock that isn’t selling costs the business money - the return on investment dwindles with every day the item sits on the warehouse floor. A product bundle could be a smart strategy at this time of year, pairing popular items with items that are costing you more money to keep. Though the product bundle will be at a cheaper price than if the products were bought individually, you could cut your losses on the slow-moving stock. (Note: customers still like the opportunity to buy individual items.) Not only do you create the potential to move more stock, you offer good value to customers when the products that you bundle complement each other well.
9. Negotiate better payment terms with your creditors
If your business has an excellent history of paying suppliers promptly, it’s not unreasonable to negotiate extended credit terms (more time to pay and a bigger credit limit) from your suppliers. Your own business might reward your debtor's good payment behaviour with extended credit terms, so why not proactively seek the same benefit for yourself? But always maintain your reputation as a prompt payer even with extended payment terms - prompt payers are considered good customers and have more room to negotiate in the future.
10. Communicate with your team
Your numbers and strategies will be more achievable with buy-in from the wider team. Update the sales team on your credit collection plans, talk to all staff about expense management in the coming months, communicate regularly with the warehouse manager about stock levels. Not only are you a finance manager, you’re a marketer, too - share the story of how the business benefits when cash flow improves. Stay connected with the people at the front line of the business and expect your bottom line to benefit.
The final word: Early preparation, solid forecasting and proactive strategies are key to managing the risk of cash flow insecurity over the holiday season. You’ll ease into the New Year in better financial health and bypass the dreaded holiday hangover.
ezyCollect is designed to help wholesalers take charge of credit control and collections with a best practice accounts receivable system . To save time and simply get paid faster, tour the solution today: