Colin Walls: Tackling the new year cashflow slump

For many businesses, after the excitement of the festive period and the January sales finally abates, mitigating the drop in cashflow caused by consumers tightening their purse strings can put serious pressures across all business functions.

Colin Walls says awareness of alternative forms of lending 'remains low'. Picture: Contributed

To help bridge the gap, bars, restaurants and other seasonal businesses – and their supply chains – need to ensure they have the working capital required to meet essential business costs, such as payroll and tax.

On top of this, the drop in footfall can make addressing any hangover invoices from the Christmas period and, if the firm doesn’t own its premises, any rent demands even more challenging.

2017 brings further challenges

This year, there are added pressures for firms and finance teams. The weaker pound has been welcome news for exporters, but importers and manufacturers are suffering from an increase in the price of goods and materials from abroad. There have even been high-profile disputes between suppliers and stockists, as the weaker pound has increased input prices, resulting in thinner profit margins for some UK manufacturers.

Meanwhile, the introduction of the national living wage last year will also put further pressure on the business cost base as firms look to maintain the staff levels required for day-to-day operations.

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It’s therefore essential that businesses make the most effective use of the funding options available to them. However, firms can often overlook the full range of solutions, with the majority using only loans or overdrafts to tide them over.

Be aware of all lending options

Both invoice finance and asset-based lending, for example, can be valuable to firms facing the post-festive period slowdown by unlocking cash to help firms with their business plans for 2017.

Invoice finance works by releasing cash currently tied up in outstanding customer invoices. Invoice finance options allow you to release up to 90 per cent of the value of your invoices, typically within 24 hours, so instead of waiting 60 days to receive payment, businesses can improve their cashflow straight away.

This can be particularly helpful during the opening months of the year, when keeping on top of cashflow can be made even more difficult if the bulk of your business is done seasonally.

Asset-based lending, meanwhile, allows businesses that have capital tied up in stock, plant or property to use these assets to access cash. Money can be released from these assets into the business, which can then be used to buy more stock or materials to create goods, allowing firms to continue investing in their business when footfall is quieter.

Yet the latest Lloyds Bank Business in Britain report found that awareness of these alternative forms of lending remains low. Only 35 per cent of SMEs were aware of invoice finance, while 25 per cent were aware of asset-based lending.

There are also avenues to explore if a firm relies heavily on international trade. Trade finance solutions help mitigate the risk of working with overseas partners and help firms maintain cashflow while processing international payments.

Speaking to a trusted adviser can help those businesses as they seek to take those opportunities without potentially damaging impact on their cashflow, allowing them to focus on having the right products and prices to appeal to consumers, rather than on the finances they need to protect their working capital.

• Colin Walls is head of global transaction banking at Bank of Scotland

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