A manufacturer, distributor or industrial supplier in Altona, in Melbourne’s west, can have a strong order pipeline heading into Christmas and still feel cash tightening at exactly the wrong time.
The reason is often simple. Stock, raw materials, freight and labour may need to be paid for first. Customers may not pay until weeks later. If several large orders land at once, the business can find itself funding the growth from its own bank account.
For businesses relying on inventory, imported goods, warehousing, manufacturing inputs or commercial customers on account terms, that timing matters.
The opportunity may be profitable. The challenge is making sure the business can carry the cost of delivering it.
Christmas can shift the cashflow cycle before sales peak
The cashflow pressure associated with Christmas often begins well before December.
Businesses may start increasing purchases in September, October or November so they are ready for expected demand. Suppliers may require deposits. Imported goods may need to be paid for before shipping. Freight and storage costs can increase. Extra staff or longer shifts may be needed.
All of this can happen before the additional revenue is collected.
That is why a business can appear to be having an excellent trading period while its working capital becomes more stretched.
The useful question is not only:
How much do we expect to sell?
It is also:
How much cash will leave the business before those sales are converted into collected money?
That second number is often the one that determines whether additional funding needs to be considered.
Large stock orders can create a hidden funding requirement
For distributors, wholesalers and businesses carrying inventory, stock can absorb a significant amount of cash.
Imagine a business increasing inventory ahead of Christmas because customer orders are expected to rise.
The purchase may make commercial sense. But while that stock is sitting in a warehouse, the money used to buy it is no longer available for:
wages
rent
freight
supplier accounts
GST and other tax obligations
repairs and maintenance
existing finance repayments
If the stock is then sold to another business on 30 or 45 day terms, the cash can remain tied up for even longer.
This is why the stock purchase itself should not be looked at in isolation.
The full cycle matters: when the stock is paid for, when it arrives, when it is sold, when the invoice is raised and when the customer actually pays.
Imported goods can make timing even more important
Businesses purchasing goods or raw materials from overseas may face a different cashflow pattern from those buying locally.
Suppliers may require partial or full payment before shipment. Freight, customs, duties or other import-related costs may also need to be funded before the goods are ready for sale.
The business may then carry the inventory until customers purchase it.
If commercial customers are given account terms, another waiting period can follow.
That means the same dollar can be tied up for a long time between paying the supplier and receiving the final customer payment.
Depending on the circumstances, trade finance or another working capital structure may be worth exploring.
Some trade finance facilities are designed to fund eligible stock, inventory or supplier purchases and may help businesses preserve more of their own cash for operating expenses.
Requirements vary between lenders, and the structure needs to fit the transaction rather than simply provide the largest possible limit.
Supplier payment terms can be just as important as customer terms
Cashflow planning often focuses heavily on debtors.
But supplier terms can have just as much impact.
Consider two businesses with identical sales.
The first has 45 days to pay its suppliers and receives customer money in 30 days.
The second has to pay suppliers upfront and waits 45 days for customers.
Their revenue may look the same, but their working capital requirements can be completely different.
Before Christmas, review:
which suppliers require deposits
which accounts are due before December
whether payment terms have changed
whether larger orders will exceed normal supplier credit limits
whether suppliers offer discounts for earlier payment
how quickly the associated stock or materials will convert back into cash
This can help identify whether a funding gap is likely to emerge before it becomes urgent.
Growth can be constrained even when demand is strong
One of the more frustrating positions for a business owner is having customers ready to buy but not enough working capital to comfortably accept the orders.
A manufacturer may need more raw materials.
A distributor may need to increase stock.
A contractor may need to commit to additional labour and materials.
A logistics or warehouse operation may need more staff, subcontractors or handling capacity.
The business may know the work is profitable, but still hesitate because of the amount of cash required upfront.
In that situation, the finance discussion is not necessarily about rescuing a struggling business.
It can be about whether the funding structure is keeping pace with the growth of the business.
That distinction matters.
Should you use your own cash for all of the Christmas build-up?
Using retained cash can be the simplest way to fund additional stock or operating costs.
But there can be a trade-off.
If most available cash is committed to inventory or supplier payments, there may be less buffer left for unexpected expenses, repairs, tax or slower-than-expected customer receipts.
Before using a large portion of available cash, it can help to compare:
How much cash will remain after the purchase?
What other commitments fall due before the stock is sold?
What happens if customer payments arrive two or three weeks later than expected?
Will the business still have enough liquidity to operate comfortably?
The answer may still be to use business cash.
But making that decision after modelling the full cashflow cycle is different from simply paying the supplier because the funds happen to be sitting in the account today.
Debtor finance may help once the goods have been sold
For businesses selling to other businesses on account, the funding problem can change once the stock has been delivered.
At that point the business may no longer be carrying inventory. Instead, it may be carrying unpaid invoices.
Debtor or invoice finance can potentially provide earlier access to part of the value of eligible receivables rather than waiting for customers to complete their normal payment cycle.
The lender may consider factors such as:
the size and age of the debtor ledger
the quality of the customers
customer concentration
payment history
disputes and credits
invoice terms
the goods or services provided
For some businesses, a receivables-based facility may better match the underlying cashflow cycle than repeatedly taking short-term lump-sum loans.
One facility may not solve every part of the cycle
A business importing or purchasing stock, selling it and then waiting for commercial customers to pay can experience more than one funding gap.
There may be a supplier funding requirement at the beginning.
There may then be a receivables gap after the sale.
Depending on the business, different facilities may be considered for different stages of that cycle.
That does not mean a business should automatically use multiple products.
It means the funding should be matched to the point at which cash is actually tied up.
Understanding the complete movement of money through the business is usually more useful than beginning with a predetermined product.
January should be included in the Christmas forecast
A business can trade strongly through December and still experience a difficult January.
Commercial customers may close or operate with reduced finance teams.
Invoices can take longer to approve.
Some businesses experience fewer trading days.
At the same time, the new year brings normal obligations back quickly.
Wages resume.
Suppliers need paying.
Rent and finance repayments continue.
Tax obligations remain.
Inventory may need replenishing after December sales.
This is why a Christmas cashflow forecast should continue until customer receipts and normal trading patterns are expected to return.
If the forecast stops at Christmas Eve, the funding requirement may be understated.
What should be prepared before discussing finance?
Businesses usually have more options when they begin the finance conversation before the requirement becomes urgent.
Depending on the lender and facility, useful information can include:
recent business bank statements
financial statements or management accounts
current debtor and creditor ledgers
ATO position
existing business loans and facilities
turnover and trading history
details of major customers
supplier terms
purchase orders or contracts where relevant
the amount required
the purpose of the funding
when the money is needed
how and when the business expects the funds to be repaid
This information helps a broker understand whether the requirement is linked to stock, receivables, seasonal operating costs, business growth or a combination.
Five questions Altona business owners often ask before Christmas
Can finance be used to purchase additional stock for Christmas?
Potentially. Depending on the business and lender, working capital, trade finance or other business finance may be considered for eligible stock and inventory purchases.
Can trade finance be used for overseas suppliers?
Some trade finance products can fund eligible overseas supplier transactions. The lender may consider the business, supplier, goods, transaction structure and repayment strategy.
What if my customers do not pay until after Christmas?
Businesses with eligible B2B invoices may be able to investigate debtor or invoice finance. Whether it is suitable will depend on the receivables and lender requirements.
Is it better to use cash reserves or borrow for extra stock?
There is no single answer. It depends on the amount required, cash reserves, expected stock turnover, supplier terms, other commitments and the cost and structure of finance. The decision should be based on the full cashflow cycle.
How early should I organise Christmas working capital?
If larger supplier payments, stock orders or operating costs are already known, it can be useful to review the requirement before the business is under pressure. More complex facilities may require additional financial information and time to establish.
Plan for the whole transaction, not just the purchase
For Altona businesses preparing for higher stock levels, supplier payments, raw material purchases or delayed customer receipts, the finance requirement may begin months before the Christmas sale is finally converted into cash.
Thrive Broking can help businesses in Altona review the timing of those outflows and inflows and compare working capital, trade finance, debtor finance and other business funding options across our lender panel.
The starting point is understanding where the money becomes tied up and how long it stays there.
A Broker’s Observation
A large Christmas order can look like an immediate win, but I would not judge it only by the margin.
I would also want to know how much cash the business has to commit before the order becomes money in the bank.
If the supplier wants payment today, the goods take weeks to arrive and the customer then pays 45 days after delivery, the business may be financing that sale for much longer than the owner first expects.
Knowing that timeline before accepting the order can turn a cashflow surprise into a planned funding decision.