How SMEs can maximise cash flow at Christmas

By Ruth Chamberlain, co-founder of Investly

For small businesses, Christmas can be an incredibly challenging time. The pressures of staff holidays, early payroll, overtime pay, and long payment terms from retailers can be problematic for SMEs, with effects lasting long past the festive season. With banks and other businesses being under-staffed over the season, this time of year can also directly affect cash flow and cause significant financial strain.

We worked closely with British organic skincare brand Skin & Tonic to ensure that Christmas was a lucrative, rather than crippling, trading period for them. Based in east London, co-founder Joshua Wade explained his experience last year.

He said: “About a year go the business started to grow really quickly and we started to experience serious cash flow problems.  Last Christmas we were busier than ever before and had orders coming in every single day. We were spending an awful lot of money at the point of order and then shipping to retailers predominantly with 30 or 60 day payment terms. Just prior to Christmas we got a really big, unexpected order in from a nationwide lifestyle brand who wanted the products delivered before Christmas for their January sales.

“As a consumer goods business Christmas is a really difficult time for cash flow, and as a young start up we didn’t have much credit from suppliers and manufacturers. We needed to order more and staff needed to be paid before Christmas rather than at the end of the month.”

Knowing that a solid plan of financial support was required to ensure that the business survived, Joshua and his partner Sarah heard about invoice financing as an option from their accountant: “I was really conscious of the fact that payroll in December needed to be pulled forward a couple of weeks so decided to give invoice financing a shot in order to make sure that we could pay the staff, pay the rent and pay for the materials for all the really big orders. It was a race against time. Once onboard, the invoice was financed in minutes and transferred to our account and we paid our staff. Materials were then ordered for the unexpected delivery. Sorted.”

SME Publications/ SME XPO 2024

Here are some additional tips for SMEs to stay afloat over Christmas

Forecast your figures

Avoid those hidden surprises by making an estimate of the amount of money you expect to flow in and out of your business this Christmas, including your projected income and expenses. Doing this before the busy Christmas period will help you to stay on track with any spending.

Speak to your customers

Long payment terms are a real issue for small businesses, as Joshua explained. In the build up to Christmas, speak to your customers about when they are likely to pay you. For larger businesses consider issuing penalties or adding interest for outstanding payments from those big businesses that are paying late because they’re out to protect their own cash flow.

Use technology to manage cash flow

Moving to electronic invoicing, storing your accounting in the cloud or offering immediate card payments all have the potential to significantly improve cash flow.


SME Publications/ SME XPO 2024