For an importer, wholesaler, distributor or industrial supplier in Keysborough, in Melbourne’s south-east, Christmas cashflow can begin long before customers start placing their final end-of-year orders.
On 22 September, the Christmas trading period is still ahead.
But businesses expecting stronger demand later in the year may already be making decisions about stock levels, supplier orders, freight, warehousing and how much inventory they want available before November and December.
That creates an important question:
How much cash could be committed before the stock is sold and the customer payment comes back?
For businesses buying goods before they sell them, the answer can be substantial.
The Christmas cashflow cycle can start with a purchase order
For an importer or wholesaler, the first Christmas-related cash commitment may happen months before the eventual sale.
A supplier order is placed.
A deposit may be required.
The balance may be payable before dispatch.
Freight needs to be arranged.
Goods may then spend time in transit before arriving in Australia.
Once landed, they may sit in a warehouse before being sold.
If the eventual customer receives commercial payment terms, there is another wait after the sale.
The complete cashflow cycle can therefore be much longer than the customer sees.
The business may fund the transaction through:
supplier payment ? freight ? arrival ? warehousing ? sale ? invoice ? customer payment
Understanding that whole cycle now can help determine how much working capital may be needed later.
A larger stock order does not only affect the stock budget
Suppose a Keysborough wholesaler expects customer demand to increase later in the year and decides to place an additional $150,000 supplier order.
The business may have enough cash to place it.
But what happens after the payment?
The business still needs money for:
payroll
freight
warehousing
rent
utilities
insurance
tax commitments
vehicles
existing finance repayments
other supplier accounts
The important calculation is not simply whether the business can afford the order today.
It is how much usable cash remains while the business waits for the inventory to generate revenue.
Imported stock can stretch the gap
Imported goods can create a particularly long funding cycle.
There may be:
supplier deposits
balance payments before shipment
international freight
customs and clearance costs
local transport
warehousing
insurance
currency movements
longer lead times
The business may commit cash well before the goods are available to sell.
If the shipment is delayed, the money can remain tied up longer than forecast.
That does not make importing unattractive.
It means the time between paying the supplier and collecting from the customer should be part of the working capital plan.
Supplier deposits deserve their own line in the forecast
Deposits can be easy to overlook because they may occur well before delivery.
A supplier might require 20, 30 or 50 per cent upfront.
The balance may then be due before shipment or delivery.
If several orders are placed around the same time, deposits alone can consume a meaningful amount of working cash.
When forecasting stock requirements, separate:
supplier deposit dates
balance payment dates
freight dates
expected arrival dates
anticipated sale dates
customer payment dates
This gives a much clearer picture of how long the business will be carrying the transaction.
Freight can make an affordable purchase more expensive than expected
The purchase price is not always the full amount that needs to be funded.
A business preparing inventory may also need to pay:
international freight
domestic freight
customs-related costs
storage
pallets
handling
local transport
insurance
A stock order that looks affordable based only on the supplier invoice may require considerably more cash by the time the goods are ready for sale.
For businesses preparing orders ahead of Christmas, the working capital forecast should use the expected landed cost rather than only the product cost.
Buying earlier can reduce supply risk but increase cashflow pressure
A wholesaler may deliberately order earlier because it does not want to risk running out later.
That can be commercially sensible.
Long lead times, supplier capacity or freight uncertainty may make early purchasing attractive.
But the trade-off is that cash becomes tied up sooner.
If inventory arrives in October but demand does not increase until November or December, the business may carry that stock for several weeks.
The key is to make the timing decision consciously.
Earlier stock can reduce one risk while increasing another.
The business needs enough working capital to manage both.
Stock turnover matters as much as stock value
Two businesses can each hold $500,000 of inventory and have very different cashflow positions.
One might sell most of that stock quickly.
Another may carry part of it for months.
When planning additional stock, consider:
how quickly each product normally sells
which lines are genuinely seasonal
slow-moving stock already on hand
expected margins
reorder lead times
minimum order quantities
customer demand
It may make more sense to increase selected high-turnover lines rather than simply increasing inventory across the board.
Working capital tied up in stock that moves slowly is unavailable for other opportunities.
Customer terms can extend the cycle again
The stock may sell successfully and the business still not have its cash back.
A wholesaler selling to commercial customers might issue an invoice on delivery.
The customer could then have 30 or 45 days to pay.
If that customer regularly pays later than the stated terms, the business carries the transaction for even longer.
This is why customer payment behaviour needs to be included when deciding how much stock the business can comfortably fund.
A product being sold is not the end of the cashflow cycle.
The cycle ends when the money is collected.
A large order can be good news and still require funding
Imagine an existing customer advises that it expects to place a much larger order before Christmas.
That may be a valuable opportunity.
But if the business needs to import or purchase the goods first, the supplier payment might occur weeks before the customer order is invoiced.
Before committing, ask:
How much cash will be required to fulfil this order from supplier payment through to customer receipt?
Then include the other expenses the business must continue paying during that period.
A profitable order can still consume a substantial amount of working capital before it produces cash.
Trade finance may be relevant before the goods are sold
Where the requirement relates to eligible supplier purchases, stock, inventory or raw materials, trade finance may be one option to investigate.
Depending on the lender and transaction, trade finance may assist with eligible purchases from Australian or overseas suppliers.
The purpose is generally to help fund the procurement side of the business cycle rather than requiring the business to commit all of its own cash upfront.
Lenders may consider:
the business’s trading history
financial performance
supplier details
nature of the goods
transaction size
existing commitments
expected repayment source
Requirements vary between lenders.
The point is not that every stock purchase should be financed.
It is that businesses expecting larger supplier commitments can compare the cost of finance with the effect of using their own cash.
Debtor finance becomes relevant on the other side
Once the goods have been sold and valid commercial invoices are outstanding, the cashflow issue may change.
The business has now earned the revenue.
It is waiting for the customer to pay.
For eligible B2B businesses, debtor or invoice finance may provide earlier access to part of the value of qualifying receivables.
A lender may assess:
debtor ledger value
customer quality
invoice age
payment history
debtor concentration
disputes or credits
nature of the sale
For a growing wholesaler or distributor, a larger debtor ledger can absorb just as much working capital as the stock itself.
A business can be funding both sides at once
This is where wholesale growth can become surprisingly cash-intensive.
The business may be:
paying for the next shipment
holding inventory from the previous shipment
waiting for customers to pay for goods already sold
Cash is tied up at multiple stages.
That is why simply looking at the bank balance today can be misleading.
The business needs to understand how much cash is committed across the entire stock and debtor cycle.
Existing facilities should be tested before stock commitments increase
A business may already have an overdraft or line of credit.
That facility may have supported ordinary trading comfortably.
But an end-of-year stock build could use significantly more of the limit.
Before increasing orders, review:
current facility limits
average utilisation
available cash
expected supplier deposits
freight commitments
payroll
tax
January requirements
A facility that appears to have plenty of room in September may look very different once several large supplier orders are paid.
Preserve some cash for things that do not go to plan
Forecasts are rarely perfect.
A shipment can arrive late.
Freight costs can be higher than expected.
A customer may reduce an order.
A large debtor may pay late.
Equipment may need repairs.
If almost all available cash has been committed to stock, the business can have very little flexibility when something changes.
Working capital planning should therefore include a buffer.
The aim is not simply to fund the expected scenario.
It is to maintain enough room for ordinary business variations.
Do not fill the warehouse simply because there is space
Available warehouse capacity can sometimes encourage businesses to carry more inventory than they genuinely need.
More stock can provide security.
It can also absorb cash.
Before increasing inventory, ask:
What is the commercial reason for holding this amount?
Is there confirmed customer demand?
Is the product historically strong before Christmas?
Are supplier lead times long enough to justify ordering now?
Could smaller staged orders achieve the same result?
The objective should be the right stock at the right time, not simply the largest inventory position possible.
January belongs in the stock forecast
Stock purchased for Christmas can continue affecting cashflow after Christmas.
Some inventory may remain unsold.
December customer invoices may remain unpaid.
Fresh supplier orders may be required for January.
Payroll and rent continue.
Tax and finance commitments remain.
If the business commits most available cash to stock during October and November, it needs to know what will remain when the new year begins.
The forecast should therefore continue through the point where customer payments and stock purchasing patterns return to normal.
Planning on 22 September gives the business time to adjust
At this stage, the exact Christmas demand may not yet be known.
That is fine.
Businesses can still create different scenarios.
What happens if sales increase by 10 per cent?
What if they increase by 25 per cent?
What if a shipment arrives two weeks later?
What if a large customer pays in January instead of December?
What if freight costs more than expected?
The purpose is not to predict the future perfectly.
It is to understand how much flexibility the business has under several reasonable outcomes.
Better supplier and customer terms can reduce the funding requirement
Additional borrowing is not the only option.
Businesses may also consider whether there is room to negotiate:
smaller supplier deposits
longer supplier terms
staged deliveries
staged payments
customer deposits
shorter customer payment terms
earlier invoicing
Even modest improvements can reduce the amount of cash tied up.
Working capital management involves both sides of the business.
How quickly money leaves matters.
How quickly it comes back matters too.
What information may help if finance is being considered?
Depending on the lender and facility, useful information may include:
recent business bank statements
financial statements or management accounts
current turnover
supplier quotations or purchase orders
supplier payment terms
stock requirements
expected freight and landed costs
debtor ledger
creditor ledger
customer payment terms
existing finance commitments
ATO position
amount required
purpose of funding
expected timing
anticipated repayment source
Clearly explaining where the money will be used and how it returns through the business can help frame the funding requirement.
Five questions Keysborough businesses may ask while planning ahead
Can trade finance help fund stock before Christmas demand increases?
Potentially. Some facilities may assist with eligible stock, inventory or supplier purchases. Requirements vary between lenders and transactions.
Can trade finance be used for overseas suppliers?
Some trade finance structures can fund eligible overseas supplier purchases as well as Australian supplier transactions. The lender will assess the business and underlying purchase.
What if we need to pay a supplier deposit now but will not sell the goods for several months?
That timing should be included in the working capital forecast. The business can then compare using existing cash with relevant commercial finance options.
Can debtor finance help once customers have been invoiced?
For eligible B2B businesses, debtor or invoice finance may provide access to funding against qualifying commercial receivables while the business waits for customers to pay.
Is 22 September too early to plan Christmas stock purchases?
No. If stock lead times, supplier commitments or freight mean orders may need to be placed during the coming weeks, late September is an appropriate time to estimate the potential cash requirement.
Know how long your cash will be travelling with the stock
For importers, wholesalers and distributors in Keysborough VIC, the Christmas cashflow challenge may begin long before the eventual customer sale.
The business can have money tied up with suppliers, in freight, in warehouse inventory and then in customer invoices.
Thrive Broking can help Keysborough businesses review that complete funding cycle and compare working capital, trade finance, debtor finance and other commercial finance options across our lender panel where appropriate.
On 22 September, this is still about preparation.
The goal is to understand the likely cash requirement before larger stock and supplier commitments are made, rather than discovering later that too much working capital has become tied up at the same time.
A Broker’s Observation
With an importer or wholesaler, I would want to know more than the value of the next stock order.
I would want to know how many days the business’s cash is tied up from the first supplier payment until the final customer receipt.
A business might pay a deposit in September, receive the goods in November, sell them in December and collect the customer invoice in January.
That is a very different funding cycle from simply saying the business needs $150,000 of stock.
When you understand both the dollar amount and the time involved, the real working capital requirement becomes much clearer.