For a food manufacturer, processor, distributor, transport operator or other supply-chain business in Cobram VIC, preparing for the final quarter can involve much more than simply ordering additional stock.
More customer demand can flow through the entire business.
More inputs may need to be purchased.
Production can increase.
Packaging requirements can rise.
Additional employees or shifts may be needed.
Freight volumes can grow.
Suppliers still expect payment.
Commercial customers may not pay until weeks after the goods have been delivered.
On 25 September, Christmas is still ahead.
This is the useful planning stage, when businesses can look at what stronger October, November and December activity could mean before additional costs are locked in.
The question is:
If customer orders increase, how much cash will the business need to move those orders all the way through production, delivery and eventually into collected revenue?
A customer order can trigger costs across the whole business
A larger order can look attractive when it arrives.
But the sales value is only one side of the transaction.
Before the customer pays, the business may need to fund:
raw materials or products
packaging
wages
casual or additional labour
electricity and operating costs
freight
fuel
storage
subcontractors
supplier accounts
The business may incur most of those expenses before the customer invoice is collected.
For businesses operating on tight production and delivery schedules, the working capital requirement can rise quickly when several orders increase together.
Follow the order from supplier payment to customer payment
One of the most useful exercises for a manufacturing or distribution business is to follow one order through the complete cash cycle.
When are the inputs purchased?
When does the supplier need to be paid?
When does production occur?
When are employees paid?
When is the finished product dispatched?
When can the customer be invoiced?
When does the customer realistically pay?
The difference between the first outgoing payment and the final incoming payment shows how long the business is funding the transaction.
Then multiply that across all the orders expected to be moving through the business at the same time.
That can reveal a much larger working capital requirement than looking at individual invoices.
Production growth can tie cash up before the product is finished
For a manufacturing or processing business, money can become committed before there is anything ready to sell.
Inputs are purchased.
Staff complete the production work.
Packaging is added.
The finished product may then wait for dispatch.
Until the customer receives and pays for it, that money has not returned to the business.
As production volumes increase, cash can become tied up in:
inputs ? work in progress ? finished product ? customer receivables
The business may have a strong sales pipeline while still experiencing pressure in the bank account.
That is a normal working capital issue for many growing businesses.
It still needs to be planned.
Seasonal preparation should be based on expected orders, not Christmas alone
The fact that Christmas is approaching does not automatically justify a major increase in production.
Late September is a time to examine what the business actually knows.
Consider:
confirmed customer orders
existing contracts
recurring customer volumes
customer forecasts
previous seasonal trading
supplier lead times
production capacity
This helps separate what is reasonably expected from what remains speculative.
A business may decide to increase production early.
Another may stage its purchases.
A third may wait for firmer customer commitments.
The right approach depends on the business.
The important thing is that cashflow follows the commercial decision.
Larger orders can test supplier limits
A business may have supplier terms that work comfortably during ordinary trading.
A stronger production period can change that.
If purchases increase significantly, the business may reach an account limit earlier.
A supplier might then require:
payment before the next order
a larger deposit
shorter terms
partial payment upfront
This can change the cashflow cycle very quickly.
Before relying on existing supplier arrangements for a larger final-quarter workload, confirm what those arrangements look like at the higher purchasing volume.
A $100,000 supplier limit may be more than adequate during an ordinary month and restrictive during a much larger production run.
Packaging can become a working capital commitment of its own
Packaging is easy to overlook when forecasting additional production.
For some businesses, it represents a meaningful cost.
Cartons, labels, containers, pallets and other packaging materials may need to be ordered ahead of production.
Specialised or branded packaging can also involve minimum quantities.
That means cash can become tied up in packaging before the related product has even been manufactured.
Where a business expects significantly higher volumes, packaging requirements should be included in the same forecast as raw materials and stock.
Payroll moves faster than most customer payment cycles
Employees are generally paid weekly or fortnightly.
Commercial customers may pay much later.
If the business adds labour, overtime or another production shift, payroll commitments can rise immediately.
Suppose an additional production period adds $18,000 a week to wages and related labour costs.
Over six weeks, that is $108,000 of additional cash required before considering inputs, freight or other expenses.
The additional production may ultimately generate considerably more revenue.
But the business still needs enough liquidity to fund the people required to produce it.
Temporary and casual labour still creates immediate cashflow
Using casual or temporary workers can provide flexibility where final-quarter demand is uncertain.
It does not remove the working capital requirement.
Those employees still need to be paid well before many commercial customers settle their invoices.
When considering additional labour, estimate:
expected start date
weekly cost
number of weeks required
when the related customer sales are expected
when those sales are likely to become collected cash
That makes the labour decision part of the overall funding plan rather than a separate operational decision.
Freight can increase at the same time as production
Getting more goods out the door can mean higher freight and distribution costs.
A business may use:
its own vehicles
contracted transport
courier networks
refrigerated or specialised freight
interstate transport providers
Those costs may increase as sales increase.
Some transport providers may invoice quickly or require relatively short payment terms.
The business’s customers may pay later.
Once again, the business funds the difference.
When modelling additional customer orders, include the cost of getting the finished product to the customer, not simply making it.
Transport operators face the cycle from the other side
For Cobram transport businesses servicing manufacturers, distributors and commercial customers, stronger freight volumes can also create cashflow pressure.
More jobs may mean more:
diesel
driver wages
subcontractors
tyres
maintenance
trailer expenses
other operating costs
Those expenses occur while the truck is doing the work.
A commercial customer may not pay until 30 or 45 days later.
The transport operator can therefore become busier while also funding substantially more operating costs.
A new freight contract should be assessed for both profitability and the amount of working capital required to carry it.
Customer payment terms determine when the cycle actually ends
For a B2B business, delivery does not necessarily mean the cashflow cycle is finished.
The product may have been made.
It has been delivered.
The customer has been invoiced.
But the money is still outstanding.
If customers operate on 30-day terms, the business may carry that receivable for another month.
If they actually pay in 40 or 45 days, the gap becomes longer again.
This is why customer payment behaviour should be included when assessing larger seasonal orders.
A profitable Christmas order that is paid in January still needs to be funded through October, November and December.
December invoices can easily become January cash
By 25 September, businesses do not need to assume customer payment will slow over Christmas.
But they can identify invoices that may eventually fall near the holiday period.
Consider a commercial customer receiving goods on 5 December under 30-day terms.
That payment is already scheduled for January.
Another customer may technically have an invoice due before Christmas but operate with reduced accounts staff during the holiday period.
The purpose of recognising this now is not to predict payment delays.
It is to understand how much December revenue could still be sitting in receivables when January begins.
January can create another production requirement
The cashflow cycle does not necessarily end when Christmas trading finishes.
Customers may require fresh supply after the holiday period.
Production may recommence.
Employees return.
Supplier accounts from December may become due.
Freight begins moving again.
Finance repayments and tax commitments continue.
If the business uses nearly all available liquidity preparing for December, January can become unnecessarily tight.
A final-quarter forecast should therefore continue far enough into the new year to show when the cash tied up during the stronger period is expected to return.
Trade finance may be relevant where supplier purchases come first
Where eligible stock, products, ingredients, components or other business inputs need to be purchased before customer revenue is received, trade finance may be worth investigating.
Depending on the lender and transaction, trade finance may assist with eligible domestic or overseas supplier purchases.
A lender may consider:
trading history
financial performance
supplier details
goods being purchased
transaction size
existing commitments
expected repayment source
Requirements vary.
Trade finance does not suit every purchase or every business.
But where a large supplier payment is the point at which the cashflow gap begins, it can be one option to compare with using the business’s existing working cash.
Debtor finance can address another part of the same cycle
Once eligible B2B sales have occurred and qualifying commercial invoices exist, the business may face a different problem.
The work has been completed.
The customer has been invoiced.
The business is waiting to be paid.
Depending on the facility and lender, debtor or invoice finance may provide earlier access to part of the value of eligible receivables.
Lenders may consider:
debtor quality
invoice age
payment history
debtor concentration
disputes or credits
underlying transactions
This can be relevant where the business’s debtor ledger expands as final-quarter sales increase.
Trade finance and debtor finance address different points in the cycle
It is important not to treat all working capital finance as the same.
Trade finance may be relevant around the supplier side of an eligible transaction.
Debtor finance generally becomes relevant once qualifying invoices exist.
Between those two points, the business may also need to fund production, wages and operating costs.
Some businesses therefore need to look at the entire cycle before deciding which structure is appropriate.
The question is not:
Which product sounds best?
It is:
At which point does the business actually run short of available cash?
Existing cash can still be part of the solution
Finance does not need to replace the business’s own working capital.
A business might choose to use a combination of:
its own cash
supplier terms
customer deposits
existing overdraft capacity
commercial finance
The appropriate combination depends on the business’s reserves and other commitments.
Using some cash may be perfectly sensible.
Using almost all of it before payroll, tax and January expenses are considered may not be.
Customer deposits may be useful for specialised orders
Some businesses may be able to request a deposit where an order is large, customised or difficult to redirect to another customer.
That can reduce the amount of working capital funded entirely by the supplier.
Whether deposits are commercially appropriate depends on the product, industry and customer relationship.
But where they are available, they can create better alignment between customer commitment and the business’s own upfront costs.
Equipment should be considered separately from operating cash
Higher production may expose another requirement.
The business might need:
additional machinery
a forklift
a vehicle
refrigeration or storage equipment
specialised manufacturing equipment
If the business pays cash for an asset at the same time it is increasing production, the impact on liquidity can be significant.
Depending on the eligible asset and circumstances, asset finance may be worth comparing so the business can assess whether it wants to preserve more cash for short-term production and operating costs.
The cost of finance matters.
So does the value of keeping working capital available.
A strong Christmas order is not helpful if it prevents the next order being filled
Working capital is not only about surviving until payment.
It also affects the business’s ability to accept the next opportunity.
Suppose a business commits nearly all available cash to one large production run.
Then another profitable customer order arrives.
Can the business afford the inputs to fulfil it?
If not, the first opportunity may have consumed the capacity to accept the second.
Preserving liquidity can therefore support growth as well as provide protection.
Stress-test the forecast before committing
Late September is a good time to model a few scenarios.
Expected orders
Customer demand develops broadly as currently forecast.
Stronger orders
Volumes increase and more stock, production, labour and freight are required.
Slower receipts
Sales occur as expected, but one or two larger customers pay later than forecast.
The business should understand what happens in each case.
If stronger sales create a funding shortage, the issue may be insufficient capacity to fund growth.
If slower receipts create the shortage, the debtor cycle may be the bigger concern.
The distinction matters.
What information can help with a working capital review?
If finance may be required, useful information can include:
recent business bank statements
financial statements or management accounts
current customer orders
expected production requirements
supplier quotations
supplier terms
payroll requirements
freight costs
debtor ledger
creditor ledger
customer payment terms
existing finance facilities
ATO position
amount required
intended use
expected timing
anticipated repayment source
Requirements vary depending on the lender and finance structure.
A clear explanation of the operating cycle can make the funding requirement much easier to understand.
Five questions Cobram businesses may ask while planning ahead
Can working capital finance help us increase production for expected Christmas orders?
Potentially. Depending on the lender, business and circumstances, commercial finance may be considered for eligible operating costs associated with increased production and trading.
Can trade finance help with supplier purchases?
Some trade finance facilities may assist with eligible domestic or overseas supplier purchases. The transaction, goods, business and repayment source will generally be assessed.
What if we have already delivered the goods but the customer has not paid?
For eligible B2B businesses, debtor or invoice finance may be worth considering against qualifying commercial receivables.
What if additional production requires new equipment as well?
Eligible machinery, vehicles and other business assets may potentially be financed separately, allowing the business to consider preserving more working capital for production costs.
Is 25 September too early to plan for Christmas orders?
No. Where supplier lead times, production scheduling, staffing or freight arrangements require decisions in advance, late September can be a useful time to estimate the likely cash requirement before larger commitments are made.
Follow the cash through the entire supply chain
For manufacturers, processors, distributors, transport operators and other businesses in Cobram VIC, a stronger final quarter can create opportunities throughout the supply chain.
But each additional order can require money to move first.
Suppliers need paying.
Employees need paying.
Products need to be produced, packaged and transported.
Customers may pay later.
Thrive Broking can help Cobram businesses review that complete cashflow cycle and compare working capital, trade finance, debtor finance, asset finance and other commercial funding options across our lender panel where appropriate.
On 25 September, the aim is not to assume Christmas orders are already arriving at their peak.
It is to understand what happens financially if those orders build over the next few months and how much cash the business may need to carry them from supplier to customer payment.
A Broker’s Observation
For a manufacturing or supply-chain business, I would not stop the cashflow forecast when the product leaves the premises.
I would follow the money all the way through.
When was the supplier paid?
How many payrolls occurred during production?
What did packaging and freight cost?
When was the customer invoiced?
When did the customer actually pay?
That entire period is being funded by someone.
If the business is funding it, then stronger sales can mean a larger working capital requirement before they mean a larger bank balance.
Understanding that gap in September gives the business time to decide how much growth it can comfortably carry and how it wants that growth funded.
Cobram