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SME owners are being urged to plan for tougher times even in the midst of the Christmas season, as a debt recovery agency warned that the post-Christmas period is the “most dangerous period” for small business cashflow.
Roger Mendelson, CEO of Prushka Fast Debt Recovery is warning SMEs of the period in late February and early March the “graveyard month”, during which most businesses collapse due to debts that pile up during the Christmas season up to that period, coupled with closures over the Christmas and New Year period which further puts pressure on SME cashflow every year due to reduced revenue and continuous expenses like wages and other bills.
And with the looming JobKeeper cliff next year, Mendelson also stressed that cashflow planning is more important and ever for SMEs if they are to survive in 2021.
“It’s essential to put measures in place now to ensure you’re not scrambling for cash in the new year, especially as it’ll be too late to organise bank support,” Mendelson said. “To kick the economy along the government is encouraging spending, however as an SME owner it’s important to defer orders wherever you can. Even reducing order sizes or negotiating a term for extended payment will be extremely beneficial.”
Mendelson is encouraging SME owners to carefully monitor the use of casual staff and look to upskill permanent staff to ensure efficiency in wage costs.
“After a tumultuous year, it pays for SME owners to protect and savour their cash. Even getting rid of old stock through cutting prices to get cash in the till, as cash will be king come the March quarter,” Mendelson said. “If you have not already, negotiate terms with your landlord especially if you’re anticipating a difficult period in the new year. There’s no harm in asking, the worst they can say is no.”
Mendelson is recommending a negotiated instalment arrangements as the pandemic has allowed for most commercial creditors to take a soft approach.
“Talk to the larger creditors and offer a payment plan over a period of four months, for example. You may be surprised at how many agree, so it’s important to keep your word and stick to the arrangement,” Mendelsohn noted. “If you have written off an account for tax purposes, often you can still enforce it legally. Most debts have a life span of six years from time of default, so dig out old written-off accounts to boost your cashflow when you most need it.”
Mendelson is also advising SMEs to call their overdue customers to ensure cashflow quickly, saying, “Pick up the phone and get your money before Christmas or early in the new year. Offer discounts for quick payments, and if they are unresponsive don’t muck around. Send those accounts straight to a no-recovery no-charge debt collection agency.”