Brokers are being urged to discuss with their SME clients, the potential cash flow concerns that can arise for non-retail business over the holiday season. SME lender Prospa has found that two-thirds of small businesses succumb to some amount of financial stress over this period, which is largely attributed to the lack of funds flowing into the business.
Propsa’s recent broker poll highlighted one of the major reasons that small business owners seek financial advice is due to managing cash flow, with more than half of the brokers saying so. Other reasons noted were financing for new or upgraded equipment (20%), expanding the current business (12%) and covering BAS and ATO debts (10%).
There have been more calls for brokers to take a proactive stance in educating and encouraging their business clients to prepare for the quieter season. Some businesses can expect to have a reduction in income due to closures, however their outgoings, such as wages and bills will remain. Alternatively, those businesses who remain open and capitalise on the seasonal spike in buying can experience greater outgoing than normal, with extra staff and stock required. In either situation, a need for additional funding is a clear concern.
It is important for Brokers to act as the voice of authority in these situations and provide SMEs with the most up to date advice.
When speaking with the Capita Broker network, they explained that there are options for businesses looking to overcome the trough of Christmas. Mainly, invoice financing was highlighted. This is a pool of available funds is established against all of the invoices on the receivables ledger. This is adjusted in line with the ledger changing as invoices are paid and new invoices are created. While there can be fees associated with invoice financing, one of the major benefits is that servicing is not a factor. Ultimately it is the debtors that are repaying the debt. As well as the fact limits can increase if the receivables ledger increases (as property is not being used as security).
Debtor and invoice finance are short-term cash flow solution. While it can assist with outstanding invoices and is great for overcoming seasonal variations, they cannot be treated as ‘band-aids’. They provide a wonderful solution to time-sensitive finances; however they do not solve potential underlying financial struggles.
While this can be the ideal solution for established businesses through their quieter trading periods, Capita Finance brokers can also assist businesses that are just starting up or haven’t been trading for very long. Our brokers can help you access funds, and maintain your consumer relationships.
Looking to get a helping-hand over this Christmas period? Reach out to our team to help you now.