Cash flow woes could spell seasonal doom for SMEs

Currency

Small and medium sized businesses could find the going tough this Christmas after new research suggests almost half of SMEs have been forced to urgently borrow money in order to cover basic monthly costs such as wages.

IGF Invoice Finance, which conducted the research, is urging SMEs to seek financial guidance and prepare in advance of the seasonal period, when these essential outgoings peak.

Across all industries, and especially in the restaurant sector, Christmas can bring great opportunity with boosts in sales, increased consumer appetite and preparations for the New Year.

However, these often come with the requirement to increase staff headcount, purchase higher volumes of stock and prepare for a reduction in the number of working days. These factors can all lead to a disruption in business and potential strains on cash flow, the company warns.

“Outgoings such as wages are essential to any business and a cost that must be met,” said Tracy Ewen, managing director at IGF. “This research highlights the struggle that some companies have even during times of ‘business as usual’. In the winter season we see many businesses experience an increase in these costs and a reduction in the efficiency of managing their income.”

SMEs can find themselves in treacherous waters without reliable sources of working capital over Christmas because many senior staff responsible for approving supplier payments take holiday during the period.

To counter these festive challenges, small businesses need to ensure that they reach out to sources of free advice well in advance in order to fully prepare for the season of late payments, according to Ewen.

“This year, the Bank Holidays around Christmas further reduce our working days, so we are imploring SMEs to avoid the difficulties of the season. By seeking advice in to the options available, short-term and unsustainable forms of borrowing can be avoided in place of practical and reliable solutions; enabling everyone to enjoy the festivities.”

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