Christmas cashflow crisis?

By Richard Mitchell
Content writer
Published: 7 November 2018 | Last update: 20 March 20201 minute read

Table of Contents

For many small businesses, the Christmas season is the most important time of the year. Retailers of all kinds, and especially those in the toys and luxury sectors, can expect to do most of their business in the build-up to the holiday season. But a rush to stock their shelves can mean that retailers trigger a cashflow crisis for their suppliers.

Maintaining a healthy cash flow is among one of the biggest challenges when growing a business. It is especially crucial as Christmas approaches, when extra staff and longer opening times mean extra wage burdens on top of your normal fixed costs. Many retail business owners turn to credit cards to keep their doors open, which simply cause more problems further down the line.

It’s a common problem - as many as one in three payments are late, meaning owners lose a day each month chasing what they’re owed, putting the brakes on growth - and in extreme cases, one that can threaten the survival of the business itself.

It affects everyone

Retailers who buy on credit can leave suppliers short of cash until bills are paid. As a result, suppliers may not be able to provide the level of stock retailers know they can sell.

Having that stock is essential, especially at Christmas. Failing to get adequate stock levels is a sure way to lose business. Most shoppers will go elsewhere if a product they want is on backorder or out of stock, and the pressure from online retailers makes the problem even more acute.

Fortunately, at Rangewell, we have solutions for both retailers and the businesses – from wholesalers and dealers to manufacturers – that supply them.

Funding for retailers

We can help retailers find ways to raise the funds to bring in stock, without relying on the generosity of suppliers providing credit.

These include traditional solutions such as short-term business loans.  This type of lending can provide straightforward borrowing, and several lenders are able to approve credit facilities of up to £100,000 in a matter of minutes. Some may also be able to have your cash transferred to your business account on the same day that you apply. Plus, repayment terms can be arranged to suit your needs from as little as one month.  

We can also help you take advantage of new solutions such as Merchant Cash Advances, or MCAs. These are particularly suitable for retailers as they allow cash advances to be secured on projected takings from credit and debit cards - effectively providing a cash advance that is repaid by customers. It can make stocking up for the busy season very easy - the more you sell, the quicker the advance is paid off.

Other important provisions might be an Overdraft Replacement Facility, providing instant access to cash for short-term needs and ideal for stock purchases. With the traditional overdraft now difficult to arrange, it can be the simple way to provide a full stock room and, while rates might appear high, using an overdraft replacement facility for a short term can be a  cost-effective solution.

Funding for suppliers

Suppliers, which can be part of the distribution chain or manufacturers selling direct to retailers, also face problems in the run-up to Christmas  - however, Finance for Wholesalers could be one solution.

However, we recently worked with a wholesaler specialising in household gifts who saw that the problem was coming round again.

“Times are still quite hard in our sector, but there are certainly retailers who want to buy what we have in stock. They need to have it on their shelves in time for Christmas - from October onwards. The problem is money. The goods we ship won’t fly off those shelves until December. We can’t afford to let them out the door on credit - but if we don’t they might not go out the door at all.

It means we are providing a big credit facility for our retail customers. We just can’t afford it.”

Our client had tried to make faster payments a condition of doing business but this meant customers went elsewhere. Small businesses simply didn’t have the money to spend upfront.

He had considered arranging a large cash sum to cover the shortfall. We explained that there was a better solution - with Invoice Finance.

Basically, Invoice Finance uses invoices from slow-paying but creditworthy commercial clients as a source of credit. This means that our client could have the cash as soon as he issued an invoice. With Invoice Finance, most transactions are structured into two installments. The first – the advance – is provided when the invoice is issued.

Our client would ensure this happened as soon as goods left his warehouse. The advance often covers 80%-90% of the value of the invoice, though this amount varies.

The second installment covers the remaining 20%, less the invoice providers fees. It’s paid once the customer pays the invoice in full.

Most Invoice Factoring arrangements are priced by discounting a percentage of the invoice value. This ranges from 1.5% to 3% per 30 days, based on the company’s risk profile and the sector.

We helped set up an Invoice Finance facility which would provide up to £50,000 of credit - large enough to help our client through the season.

“Suddenly, I was not in the business of providing credit anymore - I could leave all that to the Invoice Funding provider. They even take care of chasing up the payment from my customers. So not only did my business become more profitable, it was easier and less stressful to run.”

Our client could afford to ship out more stock and, knowing that he would have instant access to cash, he could order in more as well. His clients benefitted too as they had more stock to sell.

At Rangewell, we believe in working closely with our clients to understand their needs before we recommend a particular type of finance. If you want to find out what an Invoice Finance solution could do for you, talk to our experts. Our service - and their expertise - is absolutely free.

Whatever your line of work, if your small business works to provide goods or services to large retailers, or if you are a retailer needing stock, at Rangewell we have solutions. 

Call us to see how Invoice Finance or lending could provide the answers you need, and which type of facility is right for your business.

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