marleys_ghost_-_a_christmas_carol_1843_opposite_25_-_bl"With the festive season now in full swing, many businesses are preparing for a seasonal spike in costs, says Ian Watkinson, Chief Commercial Officer, Clear Funding. "And while most larger companies should be able to cope with the Christmas hangover, some smaller businesses may feel the strain as they make efforts to meet the extra demand.

With the festive season now in full swing, many businesses are preparing for a seasonal spike in costs. And while most larger companies should be able to cope with the Christmas hangover, some smaller businesses may feel the strain as they make efforts to meet the extra demand.

Indeed, it’s not just retailers who need to make initial investments to reap the seasonal rewards. A haulage business may have to lease additional vehicles to meet their client’s delivery requirements for the January sales, while an independent marketing firm may need to hire freelancers to deliver clients’ Christmas projects on time.

SMEs have the energy and expertise to meet their customers’ requirements, and they want to grab as many opportunities as they can, but at the same time they don’t necessarily have the bandwidth when it comes to the funds necessary to fuel their growth. Unfortunately, it’s very much a catch-22 situation: cover the additional expenses and possibly fall into the red, or lose out on the business.

Cashflow issues are more often than not blamed on late payments alone. We know this to be a real problem in the UK, with about a third of payments to small businesses in the UK still late, according to the FSB. But it’s not always the catalyst. Larger companies demanding longer payment terms are equally troublesome for SMEs. When business is at a steadier rate, many SMEs can cope with an agreed 30-day or 60-day payment terms from larger customers. But put these payment terms in place during the ‘frenzied’ Christmas period, when they want to take on larger orders, and they may start to feel the financial pressure.

The solution for a lot of SMEs in this situation will be to look for additional funds to run and grow their business during these peak periods. This should be straightforward but it isn’t always. Bank loans can tie businesses into lengthy contracts and they just don’t cater for seasonal demand of a few weeks or months of increased work. Nor do a lot of SMEs want to resort to selling assets, or filling out endless forms in a vain attempt to open or extend a credit facility.

The overarching question SMEs will be thinking: Why agree to the additional Christmas trade at all if a bank loan or credit card bill is going to chip away at their profits? It just doesn’t make sense.

When coping with seasonal costs and spikes in business, SMEs simply need a short-term way of plugging their funding gap. And with most companies having cash tied up in unpaid invoices, getting access to funds earlier will help them in their quest to meet the additional demand and increase profits.

SMEs should look for providers which offer full flexibility over which invoices to advance, for a straight fee, and don’t take control of the customer relationship. Getting access to the right short-term funding will mean no small business will ever have to miss out on seasonal opportunities due to a lack of available funds.

Ian Watkinson, Chief Commercial Officer, Clear Funding