Preparing for the traditional Christmas cash flow squeeze

Bibby pre-Christmas release

MEDIA RELEASE  

Preparing for the traditional Christmas cash flow squeeze

Sydney, November 15, 2012 - With an uncertain Christmas trading period approaching, business owners should be extra vigilant in managing their working capital and monitoring cash flow - to avoid the traditional cash flow squeeze in the New Year.

According to Gary Green, Director of Bibby Financial Services Australia, trading conditions this Christmas are likely to be difficult.

“Like last year, we are entering the festive season with retail figures remaining weak, a string of major insolvencies, a slight rise in unemployment and tightening of credit and bank overdrafts,” he said, noting that the average small business now waits almost twice the standard 30 days for payment of invoices and business insolvencies are still relatively high, partly because of the ATO’s reduced tolerance of tax arrears and a general tightening of trade credit from suppliers.

“Unless you are an ice cream seller near a beach or a removalist firm, which traditionally

have their busiest trading over Christmas and into the New Year, it is important to start preparing now to cover costs and maintain strong cash flows when business is

traditionally quiet,” he said.

“When the nation goes on Christmas holidays, accounts staff are harder to contact, and many businesses are on skeleton staff - so anticipating cash shortages is critical. Without adequate planning now, the business may have to deal with serious issues next year such as paying that first tax bill in the New Year after a period of lean cash flow.

“Fast growing young businesses are particularly at risk. In the rush to grow, it is often the fundamental business practices - such as getting sound credit control procedures in place - that are left at the bottom of the 'to do' list.  And yet growing companies are the most hungry for cash flow funding. A key risk for these businesses is ‘overtrading’, which results in blowouts in payables and receivables and increased financing costs that squeeze margins – which can be fatal. In such situations, the business may need to reduce sales or investigate ways to fund working capital to better align sales with production/fulfilment”, he said, explaining that debtor financing can be the answer.

How to ensure a reliable cash flow

Aside from bolstering processes and procedures, invoicing early and often, and running credit checks periodically, there are a number of funding tools available besides the overdraft that can help to ensure reliable cash flow in such situations.

One such option is debtor finance – also known as invoice financing or factoring – which is rapidly becoming an important funding tool for Australian SMEs. According to the Institute for Factors and Discounters of Australia and New Zealand, debtor finance helped fund over $62 billion in business-to-business sales nationally in the 12 months to June 2012.  Although it declined slightly in the immediate aftermath of the GFC, volumes of debtor finance are rebuilding strongly. One of the reasons for this is the growing awareness and acceptance of this form of financing among business owners and their advisers.

Debtor finance allows a business to quickly convert its unpaid invoices into cash, and is in effect a line of credit extended against the business' receivables, which is often one of the largest current assets on the balance sheet. In a typical facility, the lender (or ‘factor’) will advance between 60-80% of the face value of the business' invoices within 24 hours, with the balance returned to the client on payment by the debtor. In some cases the lender also provides an accounts receivable service, helping to save time and accounts receivable cost. The service may also be offered confidentially. Some lenders can set up such debtor funding facilities within several weeks.

Mr Green said, “Debtor finance is a versatile funding arrangement, suiting a wide range of businesses and industry sectors - from small start-ups to established listed small cap companies, from manufacturers and wholesalers to business service providers. Retail, construction and IT-related services, however, are not suited to debtor finance. 

“A unique feature of debtor finance is that traditional real estate security is not required, which can be a critical advantage in an environment of softening house prices,” he said.

“Although debtor finance can be slightly more expensive than other funding facilities on a straight comparison of interest rates, this comparison ignores the often significant benefits of strong cash flow to the business - from more streamlined operations, less reliance on discounts for prompt payment, reduced accounts receivable cost and the ability to take advantage of opportunities more quickly.”

“Cash flow is king, and so monitoring cash flow in the current environment should be a high priority.  Should your business be facing any immediate or anticipated cash flow shortage, having a closer look at debtor finance could be a good idea.

“Just in case the environment becomes even more challenging, now is a good time to prepare,” Mr Green said.

ENDS

Media contacts

Rebecca Murray, FCR: t (+612) 8264 1002/ +61 423 338 005

Andrew Briggs, Bibby Financial Services (Aust): t (+612) 9310 8921/ + 61 403 096 807

Bibby Financial Services is one of the world’s leading global debtor finance specialists (also known as invoice finance, factoring, cash flow finance and invoice discounting) - a flexible and accessible cash flow funding tool for small and medium sized businesses.  With over 6000 clients in 15 countries worldwide, Bibby Financial Services is part of the Bibby Line Group, a family-owned business-to-business services group with origins in shipping dating back over 200 years to 1807.
 
Debtor finance is designed to improve business cash flow and support business growth by releasing cash tied up in unpaid invoices. Unlike other funding arrangements, no real estate security is required, making it more accessible for small and medium sized business owners.

Bibby Financial Services Australia has grown dramatically, in recent years at an average 20% pa, due to increasing awareness of debtor finance as a smart choice for improving the cash flow, and a commitment to providing flexible, tailored solutions quickly. It now serves clients nationally, via a network of offices in Sydney, Melbourne, Brisbane, Perth and Adelaide.

For more information on Bibby Financial Services please visit www.bibby.com.au or follow them on