How to survive the Christmas blackout period

Christmas cash flow

The Christmas Blackout period can bring Australian small businesses to a halt as wage bills take priority and payments begin to dry up. With everybody looking to preserve the cash they have available, business to business transactions begin to slow down from November through to February, leaving some business owners scrambling or tying themselves up in expensive, short term loans.

Effectively, everyone is sailing down the same river, causing an industry wide shutdown. Everyone is restricting cash out flows and this has a knock on effect industry wide – everyone is chasing everyone else for money, and no-one wants to let go of it for all the same reasons.

In dire cases, this period can even be a precursor to insolvency, where businesses who managed to survive until February find themselves on stop credit with suppliers or unable to pay wages. These issues are classic signs of an imminent collapse and serve as a chief reminder of why it is important to prepare for and manage this unfavourable annual tradition.

Here are some key ways SMBs can prepare for the Christmas Blackout period…

Some small businesses may struggle to enforce punctual payments, which can result in outstanding credit and a disparity in services given to payments received. This practice often takes a toll come the Christmas Blackout period, but the best-prepared businesses always find a way to weather the storm and survive comfortably until the Blackout ends in February. One key way that this is achieved is through implementing early payment discounts to customers who tend to leave their invoices outstanding. This incentivises on-time and early payments and can drastically improve the chances of heading into the Christmas Blackout with no outstanding payments and full coffers.

Past performance can also be a reasonable indicator of future projections, but many small businesses fail to incorporate their yearly performance into their cost forecasting. By creating a good understanding of likely expenditures, businesses generally give themselves an accurate sense of how much cash they will need for the Blackout period. Forecasting to the end of March will ensure that even in the event of a prolonged slow period for trading, the business will have enough reserves to manage until regular industry conditions are restored.

In the event that a business faces significant cash shortages over the Christmas Blackout, suppliers may be impatient about payments, and in severe cases this can erode the relationship entirely. Businesses can alleviate this stress by proactively asking for extended terms to see them through to the beginning of March. This will ensure that suppliers have a concrete timetable for payments, but also that businesses can wait until cash flows start to loosen up before paying their debts. It is important that this process is negotiated early, rather than being left until the end of the year.

Some businesses will incur large bills that can result in significant amounts of money being paid in lump sums. This is an easy way to destabilise cash flow and can have long lasting effects. To combat this, businesses may choose to put large sums on a payment plan, which would see multiple smaller payments made to the value of the total debt. This is an effective management tool, as it provides the ability to pay invoices incrementally rather than invite the potentially destabilising presence of massive one-time payments.

Given the tumultuous nature of the Blackout period, it is important that in case of a financial emergency, a business has access to reserve funds to see it through. Without this, the security of a business can be effectively placed in the hands of customers who may not be be able to pay invoices on time, leaving small businesses vulnerable. To protect against this, businesses can organise a backup line of credit that will sustain them should customers fail to deliver on time. Receivables can be borrowed against for emergencies, often providing a lifeline to small businesses that need their cash delivered to tide them over until March.

Proactive planning and understanding where money will be spent during the Christmas Blackout period is crucial for surviving until March. Taking steps to secure as much cash flow as possible through this period can be the difference between safety and insolvency, but the most important thing is to institute reserve funding in the event that things do not go to plan.


About the author

Leigh Dunsford is the co-founder of fintech lender Waddle, which integrates with leading cloud-accounting software providers, and enables borrowers to close cash flow gaps by automatically tapping into funds locked up in receivables. Dunsford and his cofounder Simon Creighton recently spoke to Dynamic Business about expanding into New Zealand due to strong interest for its cloud-based funding software technology.