Warning over Christmas cash

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Small firms should act now to protect their cash flow over the festive period, according to experts at Hitachi Capital Invoice Finance.

Businesses must be ready to ride out the dip in demand as clients put off signing contracts and order books fall.

Preserving cash flow to ensure costs are covered and momentum is maintained in 2016, is key, according to John Atkinson of Hitachi Capital Invoice Finance.

Failure to do so could ‘overstretch’ working capital and cause problems for months, he added.

“A large majority of SMEs see a decrease in orders and activity over the Christmas season. However, despite the fact that production is halted and new contracts are short in supply, businesses can act to mitigate for these circumstances through the creation of financial projections, implementation of due diligence procedures and contingency planning.

“Businesses should aim to process and issue any invoices as soon as possible, and make efforts to follow up on any outstanding invoices. If not addressed, this income could take weeks to arrive. Similarly, if a firm’s working capital provision is a concern, incentives can be offered to encourage quicker payment by debtors.”

Financial controllers are advised to delay any non-essential expenditure during the shut-down period. Maintenance and the purchase of new equipment or supplies can be deferred and unusual seasonal expenses such as Christmas parties and staff gifts should be accounted for.

If necessary, traditional December bonuses may be moved to a more opportune time, such as March, to coincide with the end of the financial year.

Recent research reveals that banks are withdrawing small business overdrafts at a rate of £5m a day.