The months before Christmas can put pressure on small and medium-sized businesses as they buy stock and prepare for higher payroll costs. Invoice Finance provides an advance against eligible unpaid customer invoices, helping release working capital for the wages and running costs of the season. The amount available depends on your eligible invoices and agreed facility terms. For stock that has to be paid for before any invoices exist, Trade Finance can sit alongside it.
Why is cash flow a problem before the Christmas trade arrives?
The Christmas cash flow crunch actually begins in the months leading up to the end of the year.
- Stock, including the extra stock for the season, often needs to be paid for in September, October or November.
- Suppliers may want a deposit or full payment before the stock is delivered.
- Longer trading hours push up the wages bill in November and December.
- Many business customers do not settle their accounts until the new year.
So the pressure starts long before the trading peak does.
Why doesn’t cash flow catch up until after Christmas?
The Christmas cash flow challenge is set by the calendar, not by sales. The money going out, supplier deposits for seasonal stock and a bigger wages bill, is predictable and lands in the months before and during Christmas.
Customer receipts depend on the payment terms and when invoices are settled. For example, an invoice dated 5 December with 30-day terms falls due in early January; with 60-day terms, it falls due in early February. Those dates can leave a gap between paying for Christmas stock and receiving customer payments.
Consumer sales settle at the till. But for wholesalers, manufacturers and other business-to-business suppliers, the extra Christmas trade still runs on standard trade credit terms.
Which part of the Christmas cash flow gap does Invoice Finance cover?
Christmas creates 3 separate pressure points:
- Stock payments in September and October
- Extra payroll in November and December
- Customer payments that may not arrive until after Christmas. Invoice Finance is built for the second and third.
It lets you access working capital from invoices you have already issued, so the wages and running costs of the Christmas rush are not waiting on January and February payments.
And because you are not waiting out your customers’ payment terms, you can keep offering them the terms they expect.
What this looks like in practice
A labour hire business supplies warehouse and logistics staff to retailers and distributors. From late October its weekly payroll climbs as clients extend trading hours, and it keeps climbing through December.
The invoices for that work go out on 30-day and 45-day terms, so the December ones are not due until well into January and February. Meanwhile, payroll, super and ATO payments are due well before then. With an Invoice Finance facility already approved and in place, the business can draw against those December invoices as they are issued rather than waiting out the terms. The more the business invoices in November and December, the more funding it can access, up to its facility limit – unlike a term loan, which, by contrast, stays the same, however busy the season gets.
How does Invoice Finance work?
Once your ScotPac Invoice Finance facility is approved and in place, you can submit eligible invoices and access up to 85% of their value in as little as 24 hours. The remaining balance is released when the customer pays, less applicable fees and subject to your facility terms.
Unlike a business loan, which gives you a fixed amount, Invoice Finance can grow with your eligible invoices, with facilities of up to $200 million, subject to approval.
As bigger and more frequent invoices go out in November and December, the funding available can rise with them. Security is structured around your receivables, depending on the facility, and a lending specialist can explain exactly what applies.
How do you know if Invoice Finance is right for you?
Invoice Finance is designed for and assessed against business-to-business trading history.
To qualify, you’ll generally need to have been trading for at least 6 months and to invoice at least $10,000 a month. Your customers should be creditworthy Australian businesses buying on standard trade terms, and your business needs to be registered in Australia and invoice in Australian dollars. A lending specialist will look at the full picture before confirming what’s available.
How does Trade Finance fit alongside Invoice Finance for Christmas stock?
Invoice Finance advances cash that is already owed to you, so it cannot help until the invoices exist.
In the run up to Christmas, the stock usually has to be paid for first, often months before it sells.
That is the gap Trade Finance is built for.
Trade Finance typically works alongside Invoice Finance and can fund up to 100% of the cost of goods, for up to 150 days, subject to approval and facility terms. It generally requires at least 12 months of trading history.
This can help you meet supplier payment deadlines when ordering Christmas stock. Delivery still depends on production, shipping and the supplier’s performance.
Used together, Invoice Finance and Trade Finance cover both ends of the peak season timing problem. Trade Finance funds the payments going out when you order new stock. Invoice Finance releases cash from the invoices once they are issued.
Christmas funding works best when it is in place before the stock orders go in. Get in touch with a lending specialist.
