For a manufacturer, builder, supplier, transport operator or professional service business in Ballarat VIC, late September can be when the final quarter begins to look more certain.
Quotes may be turning into jobs.
Existing customers may be discussing work they want completed before the end of the year.
Suppliers may be asking for forward orders.
Businesses may be considering additional staff, materials, stock or subcontractors.
Christmas is still ahead.
On 25 September, this remains the planning stage.
But the decisions being made now can determine how much working capital a business needs through October, November, December and into January.
The question is not simply:
How much work could we win?
It is also:
How much will we need to spend delivering that work before the money comes back?
A stronger final quarter can absorb cash before it creates it
Growth is usually discussed in terms of revenue.
More customers.
More projects.
More orders.
Higher turnover.
But additional sales often require the business to spend first.
A construction business may need materials and subcontractors.
A manufacturer could require raw materials, packaging and additional production hours.
A transport operator may need more fuel, drivers and maintenance.
A professional service business might add staff.
A wholesaler may increase stock.
Each business can be growing for good commercial reasons while also using more working capital.
That is why a busier final quarter does not automatically mean there will be more cash sitting in the bank during the same period.
Start with what is already becoming visible
By late September, businesses do not need to guess what Christmas will look like.
Start with the information already available.
Which quotes are likely to proceed?
Which customers have indicated they need additional work?
Are there confirmed purchase orders?
Are supplier requirements changing?
Will staff hours increase?
Does equipment need maintenance before workloads rise?
Then estimate when the resulting expenses are likely to occur.
That gives the business a much more useful starting point than simply increasing the revenue forecast.
Construction businesses may carry several jobs at once
For builders, subcontractors and trades, cashflow pressure often comes from overlapping projects.
One job needs materials this week.
Another has wages and subcontractors being paid.
A third has been completed but is waiting on a progress payment.
A fourth is about to commence.
Each project might be profitable.
Together, they can create a significant working capital requirement.
A business should therefore calculate how much cash is likely to be tied up across all active jobs at the same time.
That peak amount can be much more important than the value of any individual contract.
Materials can be paid for well before the customer pays
Supplier timing has a major influence on the amount of working capital required.
Some businesses receive 30-day supplier terms.
Others need to pay upfront.
A larger order may exceed an existing supplier credit limit.
Specialised materials may require a deposit.
If work increases through the final quarter, material purchases can rise quickly.
Before committing to additional jobs, compare:
supplier payment dates
expected job commencement dates
customer deposits
progress claim dates
invoice dates
realistic customer payment dates
The gap between supplier payment and customer receipt is the amount the business needs to carry.
Manufacturing growth can tie cash up at several stages
Manufacturing businesses can experience an even longer cash cycle.
Money may be tied up in:
raw materials
work in progress
finished goods
freight
customer invoices
A manufacturer might purchase materials in October, manufacture during November, deliver in December and receive payment in January.
The sale may be profitable.
But the business may have carried the cost for several months before collecting the cash.
This is why manufacturing forecasts should follow the entire cycle rather than stopping when the goods leave the factory.
Additional production can also mean additional labour
A manufacturer preparing for higher output may need overtime, casual staff or additional shifts.
Those people are paid weekly or fortnightly.
The customer may not pay until well after delivery.
If another $15,000 of labour is required each week for six weeks, the business has funded $90,000 before considering raw materials, freight and other costs.
Production planning therefore needs to include payroll as well as stock and materials.
Transport businesses should convert future work into weekly costs
For a transport operator, additional work usually creates operating expenses almost immediately.
More freight can mean:
diesel
driver wages
subcontractors
tyres
servicing
repairs
tolls
trailer costs
A commercial customer may then pay on 30, 45 or longer terms.
That means the business could fund several weeks of additional activity before the first larger customer payment is received.
When reviewing upcoming contracts, estimate the additional weekly operating cost, not only the expected revenue.
Professional service businesses can have a payroll gap instead of a stock gap
Not every business needs physical stock.
A consultancy, accounting practice, technology firm or other professional service business may have most of its working capital tied up in people.
Employees perform the work.
Employees are paid.
The client is invoiced.
Then the business waits for payment.
If the business adds employees or increases project work over the final quarter, more money can be tied up in that cycle.
The working capital issue is different from a manufacturer’s, but the principle is the same.
The business is funding delivery before collecting the revenue.
A new employee can create several payrolls before the first customer receipt
Suppose a business adds two employees in October to prepare for additional client work.
They begin receiving wages immediately.
The business completes work during October and invoices at month-end.
The customer then pays on 30-day terms.
Several payroll cycles may occur before the first customer payment relating to those employees reaches the account.
That does not mean hiring is the wrong decision.
It means the cash cost of hiring should be included in the growth plan.
A growing debtor ledger can be a sign of success
A business can have more unpaid invoices because it is selling more.
That is not necessarily a negative sign.
But unpaid invoices still represent money the business cannot currently use.
Suppose monthly B2B sales increase from $250,000 to $400,000 while customers continue taking the same amount of time to pay.
The debtor ledger can increase substantially.
The business may be more successful while simultaneously needing more working capital.
That is why the debtor ledger should be reviewed alongside revenue growth.
Customer payment behaviour matters more than the terms on paper
A customer may officially be on 30-day terms.
But when do they actually pay?
Thirty-five days?
Forty-five?
Do invoices need internal approval?
Are purchase order numbers required?
Does the customer run payments only on certain days?
When forecasting the final quarter, use real customer behaviour where possible.
An invoice that is legally due on one date but normally paid ten days later should be forecast based on what is realistically expected.
Christmas and New Year can extend the cycle
By 25 September, it is still too early to assume Christmas payment delays are occurring.
But it is not too early to identify invoices that could eventually fall across the holiday period.
A job completed in November may create a December invoice.
A December invoice may become January cash.
Some customer businesses close or operate with fewer staff.
Accounts approvals may take longer.
If a significant receipt is expected around that period, test what happens if it arrives one or two weeks later than usual.
The purpose is not to predict a delay.
It is to know whether the business can handle one.
Supplier payments may also fall at awkward times
Christmas timing affects the outgoing side as well.
Materials purchased in November may create supplier accounts falling due in December or January.
The business could therefore be paying suppliers at the same time that some customer receipts have slowed.
That timing mismatch can be more important than the overall profitability of the jobs.
A useful forecast should show both debtor and creditor due dates rather than looking at them separately.
More stock can create another layer of working capital
Ballarat retailers, wholesalers and suppliers may also consider increasing stock for the final quarter.
That can be sensible where demand is reasonably predictable.
But additional stock moves cash from the bank account onto the shelf or warehouse floor.
Before increasing inventory, review:
current stock levels
fast and slow-moving items
supplier lead times
payment terms
expected demand
margins
likely stock remaining after Christmas
The objective is to prepare for customers without unnecessarily reducing the business’s operating buffer.
Trade finance may be relevant where supplier purchases create the gap
Where a business needs to fund eligible stock, inventory or raw-material purchases before the resulting sales are collected, trade finance may be worth considering.
Depending on the lender and transaction, facilities may assist with eligible Australian or overseas supplier purchases.
Lenders may consider the business, supplier transaction, financial performance and expected repayment source.
Trade finance will not suit every purchase.
But where large supplier payments are creating the main working capital requirement, it may be worth comparing with using the business’s own cash.
Debtor finance may be relevant once invoices exist
For eligible B2B businesses, debtor or invoice finance may be considered where qualifying customer invoices have already been raised.
Depending on the facility, the business may be able to access part of the value of eligible receivables earlier rather than waiting for normal customer payment cycles.
Lenders may look at:
debtor ledger value
customer quality
invoice age
payment history
debtor concentration
disputes or credits
underlying transactions
This can be relevant where the business is profitable and busy but too much cash is sitting in customer invoices.
The gap before invoicing may need a different solution
Debtor finance generally relates to receivables that already exist.
But many businesses need cash earlier in the cycle.
Materials may need to be ordered.
Employees need paying.
A contract may need to be mobilised.
A project could run for several weeks before the first invoice is permitted.
Depending on the circumstances, that earlier requirement might involve existing cash, an overdraft, line of credit, working capital facility or another commercial structure.
The finance should match the point where the cashflow gap actually starts.
Equipment decisions should not be separated from cashflow decisions
A busier final quarter may also expose the need for another vehicle, machine or piece of equipment.
The business could potentially pay cash.
But using cash for a long-term asset can reduce the amount available for payroll, suppliers and operating costs.
Depending on the asset and circumstances, asset finance may be worth comparing.
The question is not simply whether the business can afford the equipment.
It is:
What does paying for it do to the working capital available for the rest of the business?
Preserve enough cash for something not going to plan
Forecasts are useful.
They are not guarantees.
A customer could pay later.
A machine may break down.
A project might take longer.
A supplier could request payment earlier.
Fuel or freight costs may change.
That is why a business should consider the minimum operating buffer it wants to retain.
If every available dollar is committed to growth, there may be little room to respond when normal business variations occur.
Existing facilities should be tested against the busiest point
A business may already have an overdraft or line of credit.
That can form part of the working capital plan.
But use the genuine available capacity.
A $200,000 limit is not a $200,000 buffer if $150,000 is normally drawn.
Forecast what is likely to happen to the balance as materials, payroll and supplier payments increase.
The useful figure is how much capacity remains at the point when the business expects to have the most cash tied up.
January needs to be included now
A business preparing for a stronger final quarter should look through to January.
Jobs completed before Christmas may not be paid until the new year.
Stock may need replenishing.
Employees return.
Payroll continues.
Suppliers require payment.
Rent and finance repayments continue.
Tax commitments remain.
A strong December can therefore be followed by a tight January if the business has used most of its available working capital beforehand.
The forecast should continue until normal customer receipts and trading patterns have resumed.
25 September is still a planning date
Businesses do not need to act as though the Christmas rush is already underway.
It is not.
At this stage, the business can refine forecasts as new information becomes available.
A quote may become a contract.
A customer may confirm an order.
A supplier may provide final pricing.
Staffing needs may become clearer.
The purpose of planning now is to identify possible cashflow pressure early enough that the business still has choices.
What information can help with a working capital review?
If additional finance may eventually be required, useful information can include:
recent business bank statements
financial statements or management accounts
current contracts and pipeline
expected stock or material requirements
payroll
supplier terms
debtor ledger
creditor ledger
customer payment history
existing finance
ATO position
equipment requirements
amount potentially required
purpose of funding
expected timing
anticipated repayment source
Requirements vary between lenders.
The aim is to understand the business’s actual funding cycle rather than automatically selecting a particular product.
Five questions Ballarat businesses may ask while planning ahead
Can working capital finance help if October and November work increases?
Potentially. Depending on the lender and circumstances, commercial finance may be considered for eligible payroll, materials, suppliers and other operating costs required to deliver additional work.
What if we have profitable jobs but customers pay after our suppliers?
That timing difference can create a working capital gap even when the jobs are profitable. Supplier terms, customer payment arrangements and commercial finance options may all be worth reviewing.
Can unpaid B2B invoices help us access finance?
For eligible businesses, debtor or invoice finance may provide funding against qualifying commercial receivables while customers work through their normal payment cycle.
Should we finance equipment instead of using cash?
That depends on the asset, available cash, finance cost and the working capital the business needs to retain. Asset finance may be worth comparing for eligible vehicles and equipment.
Is 25 September too early to think about Christmas and January cashflow?
No. This is still the planning stage, but businesses with work, stock, staffing or supplier commitments developing for the final quarter can start estimating the cash requirement now.
Make sure the final-quarter opportunity can be funded
For businesses across Ballarat VIC, the final quarter can create opportunities in manufacturing, construction, retail, transport, professional services and many other industries.
The industries may be different.
The cashflow question is similar.
How much will the business need to spend before the additional revenue becomes collected cash?
Thrive Broking can help Ballarat businesses review that funding cycle and compare working capital, trade finance, debtor finance, asset finance and other commercial finance options across our lender panel where appropriate.
On 25 September, this is still about preparing rather than reacting.
The aim is to understand the likely gap while the business still has time to adjust how work, suppliers, customer payments and finance are structured.
A Broker’s Observation
A growing order book is encouraging, but I would never use the order book alone to judge whether a business has enough cash for the months ahead.
I would want to know what happens in between.
How much needs to be paid to suppliers?
How many payrolls occur?
What customer invoices will still be outstanding?
What happens if a large payment moves from December into January?
A business can have more work than ever and still need more working capital than ever.
The useful number is not only the value of the work ahead.
It is the maximum amount of cash the business expects to have tied up while delivering it.