Christmas is almost here! It’s the time of the year to sit back, relax, and escape from stress. That’s not the case for everyone though — while many businesses have a shutdown period, most retailers and wholesalers have to up their game at Christmas.
Whether you’re an online retailer, a wholesaler, or you’re running a high street shop, cashflow is a key success factor at this time of the year. According to the Centre for Retail Research, retailers can expect £78.69bn of Christmas spending in 2017, but to take advantage you’ll need to keep on top of your cashflow. Larger stock orders, costs for additional warehouse space and late invoice payments from customers can all cause liquidity gaps, but there’s no need to throw in the towel.
Finance can help stabilise your cashflow to service seasonal demand — there are many different options out there, and finding the right one mainly depends on the needs of your business. Therefore, a breakdown of requirements can help you choose finance that’s the best fit for your purpose. Do you need the funds right now? How important is flexibility to you? Do you only need the cash for a few weeks? Whatever you’re looking for, Conrad Ford from Funding Options offers a few options for tackling your cashflow challenges this Christmas.
Revolving Credit Facilities
If you’re looking for a flexible solution, a revolving credit facility might be a good option. It works like an overdraft, and offers a lot of flexibility as you can draw down the funds when you need them. You’ll be approved for a credit limit which you can then use as working capital, and aside from initial setup fees, you only pay interest on what you use.
This type of funding is particularly handy for businesses that need the money quickly, or on a regular but short-term basis. Once you’ve paid back a certain amount, you can often ‘top up’ or renew the loan.
For businesses with a short trading history, revolving credit facilities can be a fast alternative to the bank, but on the other hand, it’s worth bearing in mind that the interest rate is usually higher for flexible products.
A short-term business loan might be another good option to tide you over until the next boost of working capital. Getting a loan doesn’t need to be a longstanding obligation, and there are many short-term options for as little as 3 months. If additional requirements for Christmas obstruct your cashflow, a short-term business loan could help you bridge the cashflow gap until your situation has stabilised again.
Just like a revolving credit facility, short-term loans are usually unsecured, which means you don’t need to have any assets. However, most lenders would still want you to provide some kind of security, and would therefore ask for a personal guarantee.
Most wholesalers earn their money by invoicing other businesses. In these cases, invoice finance may be the best option. Invoice finance uses the money your customers owe you as the basis for lending, which can be very useful when you haven’t been paid for the last job yet, but you need to spend money for the next one.
For wholesale companies this can be a recurring issue, but may be particularly bad at Christmas, when delayed orders and missed payments are more likely.
It’s also worth mentioning trade finance, which is designed for purchasing stock from overseas suppliers. Working with international suppliers can add to the payment gap even more, because many of them will require up-front payment or a hefty deposit — so by using trade finance (perhaps combined with invoice finance) you can stabilise your cashflow at both ends of the supply chain.
Business Credit Cards
Another useful buffer is a business credit card, which works just like your personal credit card, but is issued to the business instead. Many people prefer credit cards over loans because of easy expense tracking and end-of-the-month reconciliation. However, setting up a business credit card with a high street bank isn’t that easy and may take a few weeks, so if you need the funds very quickly, you might want to look for a faster alternative.
Once set up, a business credit card is a quick and easy way to borrow money in the short term. However, for some business owners the credit limit might be too low for larger projects. Having said that, there are new lenders who have recognised this issue and are now adding a card to their existing revolving credit facilities, making a convenient combination.
These are just a few of the options to financially boost your business this Christmas. With many different lenders and funding options out there, it helps to identify your challenges too. Once you’ve narrowed down the crucial factors, if you’re still not sure which option is the right one for you, matchmaking services like Funding Options can support you – so you can get on with wrapping presents and eating mince pies!
Conrad Ford is Chief Executive of Funding Options, recently described by the Telegraph as “the matchmaking website for small businesses and lenders”. Funding Options has been selected by HM Treasury to help businesses find finance when they’re unsuccessful with the major banks, as part of the Bank Referral Scheme that launched in November 2016. @FundingOptions