or a manufacturer, wholesaler, distributor or industrial supplier in Braeside, in Melbourne’s south-east, late September can bring an awkward planning decision.
Christmas demand is still ahead.
Some customers may be indicating what they expect to need. Suppliers may be asking for forward orders. Production teams may be discussing capacity. Longer-lead-time stock or materials might need to be secured soon.
But much of the final-quarter demand may not yet be confirmed.
That creates a different cashflow question from simply asking whether the business has enough money to buy more stock:
How much should we commit now without tying up more cash than the expected demand justifies?
Preparing early can make commercial sense.
Overcommitting too early can leave money sitting in stock, raw materials or work in progress while payroll, suppliers and everyday operating costs continue.
Forecast demand without treating the forecast as a confirmed sale
A business may have good reasons to expect stronger activity later in the year.
Past trading patterns may show an increase.
Customers may have provided forecasts.
Sales teams may have promising discussions underway.
Existing orders may already be building.
But expected demand and confirmed demand are not the same thing.
That distinction matters when the business is about to commit a large amount of cash.
Before increasing purchasing, separate future demand into categories such as:
confirmed customer orders
recurring customer requirements
strong expected demand
speculative additional stock
The business can then decide how much working capital it is comfortable allocating to each category.
Buying too late and buying too early both carry a cost
Waiting until every customer order is confirmed can create its own problems.
Stock may not arrive in time.
Suppliers may become busy.
Production capacity may tighten.
Freight lead times can affect delivery.
The business may miss sales because it cannot fulfil demand quickly enough.
But buying too early creates another risk.
Cash leaves the business sooner.
Inventory may sit longer.
Demand may differ from expectations.
The money cannot be used elsewhere while it remains tied up.
Christmas stock planning is therefore not necessarily about choosing between buying and not buying.
It can be about deciding when to commit, how much to commit and how much liquidity to preserve.
Supplier lead times should influence the decision
A business purchasing locally with a two-day supplier lead time may have more flexibility than one relying on products or components that take six or eight weeks to arrive.
For each major stock line or material, consider:
supplier lead time
minimum order quantity
payment terms
reliability of supply
expected customer demand
current stock on hand
normal stock turnover
Products with long lead times and predictable demand may justify earlier ordering.
Products that can be replenished quickly may not require the same level of cash commitment in September.
Treating every stock line the same can unnecessarily increase the working capital requirement.
Manufacturers also need to decide when to increase production
The same issue applies to manufacturing.
A business may expect higher customer requirements later in the year and want to increase production early.
Doing so can provide more finished inventory and reduce pressure later.
But producing early moves cash into:
raw materials
labour
packaging
consumables
electricity and other operating costs
finished goods
The product may then sit waiting for a customer order.
That can be sensible if future demand is reasonably predictable.
But it means the business needs enough working capital to carry both the extra production and its normal commitments.
Capacity planning has a cashflow consequence
A manufacturer may reserve overtime, additional shifts or temporary labour so it has enough capacity later.
A warehouse might increase staffing.
A distributor could organise additional delivery capacity.
These arrangements can be necessary before the final-quarter workload is certain.
The business should include them in the forecast.
If additional capacity costs $15,000 a week, how many weeks could the business carry that cost before the corresponding sales are collected?
Capacity is not free simply because it is being prepared for future revenue.
Do not let minimum order quantities make the decision for you
Suppliers sometimes offer price advantages for larger quantities.
There may also be minimum order requirements.
A lower unit cost can look attractive.
But a cheaper unit is not necessarily cheaper for the business if a much larger amount of cash becomes tied up.
For example, purchasing twice the normal quantity may reduce the unit cost by several per cent.
But if the additional stock remains in the warehouse until January or February, the business has traded working capital for that saving.
The relevant comparison is not only:
How much do we save per item?
It is also:
How much additional cash will be tied up and for how long?
Supplier discounts should be assessed against the cash requirement
The same applies to early-payment discounts.
A supplier might offer a discount for paying earlier.
That may be worthwhile.
But the business should compare the value of the discount with the effect on its liquidity.
If paying early removes a large part of the operating cash buffer, the discount needs to be meaningful enough to justify that trade-off.
Where appropriate, finance may also be compared with the benefit gained from the supplier arrangement.
The decision should be commercial, not automatic.
Stock sitting in a warehouse has a cost beyond its purchase price
The purchase price is the most obvious cost of inventory.
There can be others.
Stock may require:
warehouse space
insurance
handling
pallets or shelving
additional administration
freight
protection from damage
refrigeration or specialised storage in some industries
There is also the opportunity cost of the cash itself.
Money tied up in excess inventory cannot simultaneously fund another customer order, an equipment repair or payroll.
That is why the right inventory level is not always the maximum inventory level the business can afford.
Look at the stock already on hand before ordering more
Before increasing purchases for the final quarter, review existing inventory.
Which lines are moving?
Which are slower than expected?
Is there old stock that should be sold before more is purchased?
Are there multiple product lines performing the same function?
Could purchasing be concentrated on the products with the strongest turnover?
A business may discover that part of the cash it expects to need for new stock is already sitting in inventory that has not moved.
Improving existing stock turnover can reduce the amount of additional working capital required.
Customer forecasts deserve different weight from customer orders
A regular commercial customer may provide an estimate of what it expects to purchase.
That information can be valuable for planning.
But it may not create the same certainty as a confirmed purchase order.
If a customer forecast changes, the supplier can be left carrying the inventory.
Businesses should understand whether customer forecasts are:
binding orders
indicative forecasts
minimum commitments
historical estimates
informal conversations
The greater the uncertainty, the more carefully the business may want to stage purchasing.
Customer deposits can reduce the amount the business funds itself
Where a customer requires a large or specialised order, there may be an opportunity to request a deposit.
That is particularly relevant where the stock is:
customised
difficult to resell
specially manufactured
unusually large
ordered specifically for that customer
A deposit can help align the customer commitment with the supplier commitment.
It can also reduce the amount of business cash tied up between purchasing the goods and receiving final payment.
Not every customer or industry will accept deposits.
But where they are commercially appropriate, they can form part of the working capital strategy.
Trade finance may be relevant when supplier payments come first
If the business needs to fund eligible supplier purchases, stock, inventory or raw materials before the resulting customer revenue is received, trade finance may be worth considering.
Depending on the lender and transaction, facilities may assist with eligible Australian or overseas supplier purchases.
The lender may consider:
business trading history
financial performance
supplier details
goods being purchased
transaction size
customer demand
existing liabilities
expected repayment source
Trade finance will not suit every purchase.
But it can be worth comparing where the alternative is using a large portion of the business’s existing cash before the final-quarter demand is fully realised.
What happens after the stock sells?
Selling the inventory may not immediately restore the cash position.
If the customer buys on commercial account terms, the business may then wait another 30, 45 or 60 days.
The cashflow cycle becomes:
pay supplier ? receive stock ? hold stock ? sell stock ? invoice customer ? wait for payment
A business can successfully sell everything it ordered and still have a large amount of cash tied up in debtors.
That is why the forecast should not stop at the expected sale date.
Debtor finance may become relevant after the sale
For eligible B2B businesses, debtor or invoice finance may be worth investigating once qualifying commercial invoices have been issued.
Some facilities can provide earlier access to part of the value of those receivables rather than requiring the business to wait for normal customer payment cycles.
The lender may assess:
debtor ledger
customer quality
invoice age
payment history
debtor concentration
disputes or credits
nature of the underlying transaction
For a business increasing stock ahead of stronger sales, this can be particularly relevant if both inventory and customer receivables grow at the same time.
The cashflow pressure can move rather than disappear
This is an important distinction.
At first, the cash is tied up in stock.
Then the stock sells.
The business may feel as though the problem has been solved.
But the cash can simply have moved from inventory to accounts receivable.
The bank account may still be waiting.
Understanding that movement helps the business forecast the full working capital cycle rather than only the purchasing stage.
Protect enough cash for ordinary business
A business should also decide how much cash it does not want to commit to Christmas preparation.
That may include enough for:
several payroll cycles
rent
tax
regular suppliers
insurance
repairs
finance repayments
unexpected costs
This provides a practical limit on how aggressively the business wants to increase stock or production.
The purpose is not to avoid taking commercial opportunities.
It is to avoid using so much cash preparing for future demand that normal operations become unnecessarily tight.
Test what happens if demand arrives later
Forecasts rarely happen exactly on schedule.
Perhaps the expected increase starts in late November instead of early November.
What happens then?
Can the business comfortably carry the inventory for another three weeks?
What if a major customer reduces its order?
What if another customer delays a purchase until January?
Testing a slower-demand scenario can show whether the proposed stock commitment still feels comfortable.
If a minor timing change creates a serious shortage, the business may be committing too much too early.
Test what happens if demand is stronger too
The opposite scenario matters as well.
What if demand is significantly stronger?
Would the business have enough cash left to place another supplier order?
Sometimes committing every available dollar to the first stock purchase reduces the ability to respond to the next opportunity.
Preserving working capital can therefore help the business grow if demand exceeds expectations.
Liquidity provides options in both directions.
Existing finance limits should be included
A business may already have an overdraft, line of credit or another working capital facility.
Include the actual available capacity in the forecast.
Do not simply look at the facility limit.
If a $250,000 overdraft normally has $180,000 drawn, only part of the headline facility remains available.
Then consider how that available amount might change as supplier payments, payroll and customer receipts move through the final quarter.
Existing facilities can form part of the cash buffer, but only to the extent they genuinely have capacity.
January should influence September purchasing decisions
Inventory purchased during September or October can still be affecting the business in January.
Some stock may remain.
Some December sales may still be unpaid.
Fresh stock may be required for the new year.
Payroll restarts.
Supplier accounts fall due.
Tax and finance commitments continue.
That means the decision about how much to buy before Christmas should consider what the business wants its January cash position to look like as well.
The aim is not to finish December with an empty warehouse and an empty bank account.
Late September is still about preparing options
At this point in the campaign, businesses do not need to behave as though the Christmas rush has already arrived.
It has not.
This is the stage for reviewing:
stock forecasts
supplier lead times
confirmed orders
customer forecasts
available cash
existing finance
purchasing scenarios
Some businesses will decide to order now.
Others may stage orders.
Some may preserve more cash.
Some may investigate working capital before committing.
The value of reviewing it now is having choices.
What information can help if finance is being considered?
Depending on the lender and finance structure, useful information may include:
recent business bank statements
financial statements or management accounts
current stock levels
proposed supplier orders
supplier payment terms
customer purchase orders
expected customer demand
debtor ledger
creditor ledger
customer payment terms
existing finance commitments
ATO position
amount required
intended use of funds
expected timing
repayment source
A clearly defined purchasing plan is usually more useful than simply asking for additional cashflow without explaining what will create the requirement.
Five questions Braeside businesses may ask while planning ahead
Should we increase stock now if Christmas demand is not confirmed yet?
That depends on supplier lead times, historical demand, customer commitments, stock turnover and available working capital. Scenario planning can help the business decide how much it is comfortable committing before orders are confirmed.
Can trade finance help us secure stock without using all our cash?
Potentially. Some trade finance facilities may fund eligible supplier, inventory or raw-material purchases. Requirements vary between lenders and transactions.
What if a supplier requires a large deposit now?
The deposit should be included in the full working capital forecast, together with the balance payment, freight, expected sale date and customer payment timing.
Can debtor finance help after the stock has been sold?
For eligible B2B businesses, debtor or invoice finance may provide funding against qualifying commercial invoices while customers work through their normal payment terms.
Is 23 September too early to make Christmas stock decisions?
Not where supplier lead times or production requirements mean commitments may need to be made soon. Late September is still the planning stage, which is why it can be useful to compare different purchasing scenarios before locking in the spend.
Prepare for demand without spending tomorrow’s cash too early
For industrial, manufacturing, wholesale and distribution businesses in Braeside VIC, preparing for the final quarter may require stock and supplier decisions before Christmas demand is fully visible.
Thrive Broking can help Braeside businesses review the timing of those commitments and compare working capital, trade finance, debtor finance and other commercial funding options across our lender panel where appropriate.
At this stage, the aim is not to predict exactly how busy Christmas will be.
It is to make sure the business can prepare for stronger demand without committing so much cash too early that the rest of the operation loses flexibility.
A Broker’s Observation
There is a big difference between being prepared for demand and being overcommitted to demand that has not happened yet.
If a business expects a strong final quarter, I would look at what is confirmed, what is highly likely and what is still speculative.
Then I would look at how much cash each layer requires.
The goal is not necessarily to order less.
It is to know why the business is ordering it, how long the money may be tied up and what cash remains if the sales arrive later than expected.
That can make the difference between entering a strong trading period with flexibility and entering it with almost every available dollar already sitting on the warehouse floor.