A transport or warehousing business in Brooklyn, in Melbourne’s west, can be extremely busy heading into Christmas and still find cash getting tighter.
Trucks are moving. Staff are working. More orders are being processed. Invoices are going out.
But the business may also be paying for fuel, wages, freight, suppliers, repairs and operating costs weeks before customer payments arrive.
That gap between spending money and receiving it can become much more noticeable as activity increases before Christmas.
For businesses preparing for a busy final quarter, the question is not simply how much work is coming in.
It is whether the business has enough working capital to fund that work until the money comes back.
More work can require more cash before it creates more profit
Growth is generally positive, but increased revenue does not immediately mean increased cash in the bank.
A transport operator taking on more deliveries may need to fund additional diesel, driver hours, tolls, subcontractors and servicing.
A warehouse or distribution business may bring in larger quantities of stock before customers place their final Christmas orders.
An industrial supplier might increase purchases to make sure customers are not left waiting during a busy period.
A service business may put more staff on to complete additional work, then wait another month or two for commercial customers to pay.
In each case, the business can be profitable while still experiencing cashflow pressure.
The issue is timing.
Before taking on substantially more work, it can help to calculate how much cash the business needs to spend before the additional revenue actually becomes available.
Customer payment terms can determine the real funding requirement
For businesses selling to other businesses, issuing an invoice is only the beginning of the payment cycle.
A customer with 30 day terms does not necessarily pay on day 30.
Some may pay in 45 days. Others may take 60.
If work is completed in November and the customer closes or reduces staff over Christmas, processing may take even longer.
Meanwhile, the business may already have paid:
wages
fuel
freight
suppliers
materials
rent
insurance
equipment repayments
tax obligations
This is how a business can have a healthy order book and still find available cash becoming tighter.
When forecasting the pre-Christmas period, look at how long customers actually take to pay rather than relying only on the terms shown on the invoice.
If a customer is consistently a 50 day payer, planning on receiving the money in 30 days can underestimate the working capital needed.
Could your debtor ledger help fund the gap?
For established B2B businesses, debtor or invoice finance may be one option worth investigating.
Rather than waiting for customers to complete their normal payment cycle, some facilities can provide access to part of the value of eligible receivables earlier.
That can potentially help bridge the period between completing the work and receiving customer payment.
Whether debtor finance is suitable depends on the circumstances and the lender.
An assessment may consider:
the size of the debtor ledger
who the customers are
how concentrated the ledger is
the age of outstanding invoices
normal payment terms
disputes and credit notes
the goods or services supplied
The total value of unpaid invoices is only part of the picture.
The quality and collectability of those invoices can also influence what funding may be available.
A busier transport schedule can create a larger cashflow gap
The weeks before Christmas can be particularly demanding for transport and logistics businesses.
More freight can mean more revenue, but it can also mean higher costs immediately.
Additional work may require:
more fuel
overtime or additional drivers
subcontractors
vehicle servicing
tyres and repairs
tolls and operating costs
additional trailers or equipment
If the customer pays 30, 45 or 60 days after invoicing, the transport operator may have funded several weeks of additional activity before receiving the first dollar from that work.
That does not necessarily make the new contract or customer unattractive.
It simply means the cost of delivering the work needs to be understood before committing to it.
A useful question is:
How much will we have spent before the first customer payment arrives?
The answer may reveal a working capital requirement that is not obvious from looking at the value of the contract alone.
Christmas can expose an overdraft that was already running close
Some businesses operate comfortably for most of the year using an overdraft, line of credit or cash reserve.
Then several costs rise at the same time.
Additional stock is purchased.
Payroll increases.
Freight volumes rise.
Supplier payments get larger.
Customer invoices remain outstanding.
An existing facility that comfortably supported normal trading may no longer provide enough room.
If a business is repeatedly reaching its limit before customer receipts arrive, it may be worth reviewing the overall funding structure rather than simply trying to stretch the existing facility further.
Depending on the circumstances, alternatives could include debtor finance, trade finance, a line of credit, working capital finance or another business funding structure.
Supplier terms can change the size of the cashflow gap
Cashflow is affected by both sides of the payment cycle.
It matters when customers pay, but it also matters when suppliers expect to be paid.
Imagine a business that:
pays staff weekly
pays some suppliers within 14 days
pays freight immediately
gives major customers 45 day terms
There is already a timing gap built into the way the business operates.
When transaction volumes increase, that same gap becomes larger.
Before Christmas, it is worth comparing:
When do we have to pay?
with:
When are we realistically going to be paid?
If suppliers provide longer terms, the funding requirement may be lower.
If large deposits or upfront payments are required, the cashflow requirement can increase considerably.
Stock can consume cash before it generates revenue
Warehouses, wholesalers and distribution businesses can face a different version of the same problem.
Additional stock may need to be purchased well before it is sold.
Money tied up in inventory is then unavailable for wages, freight, supplier commitments, tax and unexpected expenses.
That does not mean a business should avoid increasing stock for a strong trading period.
But the decision should consider:
expected customer demand
existing inventory
stock turnover
supplier terms
gross margin
delivery lead times
expected sale dates
customer payment methods
available cash reserves
There is a significant difference between financing stock expected to move quickly and borrowing to purchase inventory that may still be sitting in the warehouse well into the new year.
Winning a large contract can be a cashflow challenge
Business owners naturally focus on the value and profitability of new work.
But a profitable contract can still create financial pressure if substantial costs need to be met before progress payments or customer receipts begin.
A business may need to employ more people, purchase additional materials, increase stock or operate more vehicles before receiving the first payment.
That can turn success into a working capital challenge.
Before accepting a significantly larger order or contract, calculate the amount required to deliver the early stages of the work.
If the business cannot comfortably fund that period from existing resources, reviewing finance before commencing may create more choices than waiting until expenses have already been incurred.
Plan beyond Christmas Eve
One of the easiest mistakes to make is planning only for the run-up to Christmas.
January matters too.
Some customers close for part of the summer period.
Accounts departments may operate with reduced staff.
Invoices can take longer to process.
Some businesses experience fewer trading days or a temporary fall in activity.
At the same time, expenses do not necessarily stop.
Payroll resumes.
Suppliers still need paying.
Vehicles and equipment require fuel and maintenance.
Rent and finance repayments continue.
Tax obligations remain.
Stock may also need to be replenished after a strong December.
A cashflow forecast should therefore continue until normal trading and normal customer payment patterns are expected to return.
Otherwise, the business may arrange enough funding for the December peak but not enough to manage the January gap.
What information may help when reviewing cashflow finance?
The information required depends on the lender and the type of facility being considered.
It can be useful to have:
recent business bank statements
management accounts or financial statements
current debtor ledger
current creditor ledger
ATO position
existing finance facilities
turnover details
time in business
customer payment terms
supplier terms
amount required
purpose of the funds
expected repayment source
Gathering the information before the position becomes urgent can make it easier to compare different structures.
It can also help determine whether the problem is genuinely seasonal or part of a longer-term cashflow issue.
Is the cashflow shortage temporary or does it happen every month?
This is an important distinction.
A temporary increase in working capital before Christmas may require one type of solution.
A business that is continually short despite consistent turnover may need a broader review.
Areas worth looking at can include:
debtor collection
customer payment terms
supplier terms
gross margins
pricing
tax provisions
existing debt repayments
ongoing working capital facilities
Finance can provide useful breathing room, but repeatedly borrowing to solve the same underlying problem may simply move the pressure to another month.
Understanding why the gap exists should come before deciding how to fund it.
Five common questions about Christmas cashflow finance
Can I obtain finance because customers are taking too long to pay?
Potentially. Businesses with eligible commercial invoices may be able to consider debtor or invoice finance. The lender will generally assess the receivables, the customers responsible for paying them and the overall business circumstances.
Can working capital finance be used for wages, fuel and operating expenses?
Some business finance products may allow funding to be used for operating expenses such as payroll, suppliers and other working capital requirements. The permitted purpose depends on the lender and facility.
What if my existing overdraft is already close to its limit?
That may be a reason to review whether the current funding structure still suits the size and cashflow cycle of the business. Additional or alternative facilities may be available depending on the circumstances.
Is September or October too early to organise Christmas cashflow finance?
Not necessarily. If the business can already identify upcoming stock purchases, supplier commitments, payroll increases or delayed customer receipts, reviewing funding early can provide more time to compare options and prepare the required information.
Can a profitable business still need cashflow finance?
Yes. Profitability and cashflow are different. A profitable business can still experience a funding gap when it must pay wages, suppliers and operating costs before customers pay their invoices.
Know the gap before choosing the finance
For businesses around Brooklyn VIC, particularly those involved in transport, logistics, warehousing, distribution and industrial services, a busy period can increase both revenue and the amount of money required to keep the operation moving.
The starting point should be understanding the size and duration of that gap.
Thrive Broking can help Brooklyn businesses review their working capital requirement and compare cashflow and business finance options across our lender panel. The aim is to find a structure that reflects how money actually moves through the business rather than adding finance without understanding what is creating the pressure.
A Broker’s Observation
A full order book can sometimes hide a cashflow problem.
The business owner sees additional revenue coming, but the bank account feels the wages, fuel, freight, materials and supplier costs first.
When I look at a growing business, I am interested not only in how much new work it has won, but how much cash it needs to spend before the first payment from that work arrives.
That number can reveal a funding requirement long before the bank balance starts flashing warning signs.