Everyone loves cash. And most folks love Christmas.
Unfortunately for businesses that offer credit, cash tends to be tighter at Christmas. People tend to hide behind it – a bit like August, it tends to be a ‘different type’ of month due to the sheer number of people who take holiday in these periods. ‘Shutdowns’ are common in both months as a result. Businesses that remain open, are often working on a smaller staffing level than normal. So the problem isn’t so much about your business planning and how you control holidays, but the need to control your client’s holiday management procedures. Essentially that’s out of your hands.
So what can you do about it?
Make sure you’re well positioned first – make sure that holiday charts are updated well ahead of time (they should be updated throughout the year anyway of course) so that you know where you may be vulnerable in key positions – in the context of this post, your credit control team. You don’t want them taking holiday at a crucial point in the year where they will need to be working harder than normal to ensure that the cash keeps flowing in. Their challenges will be magnified – alongside the normal slew of reasons why ‘the cheque isn’t in the post’, they will be hit with people being on holiday – not only in your client’s finance team but also whoever needs to be authorising that invoice for payment in the first place. Add to that a tendency to reduce the number of payment runs done in December, and the opportunities to get paid reduce even further.
It is also common for companies to deploy some very specific tactics in December – from “We don’t pay anyone in December…” (as is the case with one of my client’s clients), to “…we’re not sure at the moment because we’re sorting out our Year End…” In the UK for example, it is common that many companies will have a March 31st Year End date to coincide with the tax year end – the knock-on effect of that will be a Corporation Tax payment due for many companies at the end of December…in smaller companies, it is common for this to have not been considered and planned for ahead of time – the consequence is that available funds are diverted to this, rather than paying regular suppliers.
The cash ‘problem’ in December has a sting in the tail – beware the ‘rollover’ problem in January and February caused by not being able to bill as much as you’d have wanted to in December even if you have managed to complete work or projects, due to you not being able to get work signed off by your client due to their absence – holiday, Christmas lunches etc provide ample opportunity for them to book their diaries with the ‘fun’ things, rather than the ‘work’ things – they just have a different agenda to you. Invoices not issued in December will therefore reduce your ability to collect the cash in January and February. The full impact of this will doubtless depend on the credit terms offered to your clients.
As with many things in business, communication often holds the key. Make sure that you, your managers, account execs etc stay in regular touch with your clients and find out what December looks like for them ahead of time – are they going to be on holiday, does their office shutdown etc This also applies to your credit control function – they need to apply this theory to their contacts and uncover the same sort of information – how many payment runs will be done In December, does their office shut down, what’s the last day that invoices can be logged onto their system or authorised for payment. They need to report back on this too internally – you don’t want the nasty surprise of not taking the specific action that could have been taken to ensure that you could have received a payment in December.
2 simple things you can do to improve your cash position all year round (not only at Christmas):
1 – Be consistent and persistent
One of the key shortcomings in cash collection in companies that don’t have a dedicated team to chase money is a lack of consistency in tackling credit control. It is a job that people tend to shy away from – ‘asking for money’ – it goes to the bottom of the pile until it has to be done due to an impending shortfall in cash required for eg salaries, tax payments etc. Consistency is the key – regular contact with your client makes it harder for them to avoid making payment, put simply. If you only ever do it when you need it, there will always be a surprise lurking – someone being ill or on holiday, or just missing a payment run etc. Be persistent as well – take notes, know who made the commitment to pay and on what day, know who is taking the next action in the process – take action if you need to in response eg sending copy invoices, supplying copies of the information/proof of work done etc. Keep going until you get that payment date confirmed, and then follow up on that again before the due date to make sure payment is to be made as anticipated.
2 – Invoice accurately and quickly
Sounds obvious, but amazing how many companies don’t do this. Both delay the process of getting paid. Inaccurate invoices will need to be re-issued, which adds time into the process, but the real issue is the time between sending the invoice and then finding out that it has been queried – amplified if consistent credit control isn’t undertaken. When the work is done – invoice it – especially if you aren’t beholden to payment terms based on a month end. The principle is simple – if you complete billable jobs every day, make sure they get invoiced as fast as possible – because that then means that you are due for payment every day, i.e. you don’t have to wait for the next ‘month end’ before you can start collecting payment.