Businesses in all sectors usually find cash flow the hardest to manage around Christmas and the New Year. Historically this has meant that there is a sharp spike in insolvencies and bad debts in January and February. How can your clients best protect themselves?
Getting paid over Christmas and the New Year is harder than any other time of year. Traditionally this leads to an alarming spike of insolvencies early in the calendar year. The challenges this year are expected to be even greater considering the ongoing and well-publicised economic challenges that are confronting businesses. But why is it that payments slow down and what can be done to protect your clients from bad debts?
Overstocking and Inventory Issues.
Businesses often anticipate higher sales over Christmas and carry excess stock. If demands don’t meet the expectations, financial pressures can quickly mount as businesses still need to pay for rent, staff and stock. If not properly managed and where cash flow is already tight, this can easily trigger business failure.
Rising Debts and Financial Commitments
Many businesses use credit or take out short-term loans to cover expenses that mount at this time of year. Also, many loans with quarterly commitments will be due at the start of the year. Where forecasted sales don’t meet expectations, many businesses find themselves in a position of not being able to pay their bills
Summer Shutdown and Holiday Period
Business operations drop significantly over the Christmas period. Many will close completely for a couple of weeks, reducing their ability to make payment deadlines and generate revenue. In addition, key stakeholders may also be unavailable throughout the period which exacerbates cash flow problems for businesses that are already struggling.
How Can Businesses Protect Themselves?
Trade credit insurance remains the strongest form of protection available for suppliers. Historically November and December have proven to be the best time of year for clients to try and arrange cover. The reason being is:
i) Many major insurers’ annual reporting period end in December, increasing market competitiveness.
ii) Most businesses June reporting responsibilities have now been finalised and insurers are often more likely to have excess capacity on high-risk clients.
To discuss how we can help partner and help your clients protect their cash flow from bad debts contact us today.
