Certain business sectors are more predisposed to suffer a lack of cash inflows during January and February. These businesses can also hit a crisis when their outgoings exceed their available funds.
By helping your clients forecast potential cash flow shortfalls, you can ensure they're prepared to bridge the gap and avoid any last-minute scramble when options are more limited.
Which sectors are more likely to be affected?
The sectors most likely to be affected by a January and February cash flow pinch are:
- Agencies, design and marketing companies
- Professional services, such as accountancy and law firms
- Manufacturing and engineering companies
Besides a business’s sector, what else should I look for?
Any business which slows down over the pre-Christmas period is likely to invoice less in December and January, due to lower production. They will then have fewer receipts in January and February.
Companies which have a tradition of attending Christmas entertaining and parties, may also incur significant costs on gifts or other expenditures in December, possibly relying on credit card facilities.
Some companies that predominantly trade with Asian countries, such as China, South Korea, and Malaysia, may close during the two weeks around Lunar New Year, typically at the end of January, when many Chinese manufacturing companies are also closed.
How does this affect cash flow?
Here are some of the ways this can impact your client's cash flow:
- When invoicing volume is low in a given month, the effects may not be felt for 45 to 60 days, as the expected cash inflows will be delayed. If a business is using an invoice finance facility, this will be experienced sooner.
- Overheads and wages, along with the related payroll taxes, remain payable, resulting in a negative impact on your clients company's cash flow.
- Any credit card balances incurred in December will be due in early February.
- Other sizeable bills can also be due at the start of the year, such as annual professional subscriptions, professional indemnity insurances, quarterly rents and self-assessment income tax for directors or the self-employed.
Ways to avoid the start of the year panic
Ahead of the Christmas season, speak to those clients you expect will have a cashflow dip in January or February and assess what level of funding will be available in the business at this time.
Consider setting budgets for Christmas expenditure, using limits on credit cards or sub-accounts in their banking facilities.
Review whether any Instant Offers are likely to be available to your client, in case they need short term financing.
Review your client’s business credit score and ensure they have the best score possible, using the Credit Review Service, if necessary
If your client’s business is willing to prepare more detailed cash flow projections, break them down weekly to identify the pinch points during those crucial months.
Get in touch
Contact your dedicated Partnership Manager for more information about funding for your clients, including Instant Offers, or you can contact us here.
