Business towels on deckchair
Despite the questionable weather, the peak holiday period is upon us and this can mean preparing for a change in business.
An increase in footfall or payment delays during the summer can seriously affect cashflow and increase a business’s need for working capital. For small and medium sized enterprises (SMES), a change in cashflow can be particularly damaging. Our latest Bank of Scotland Working Capital Index found that firms across Scotland have more than £31.5 billion tied up in surplus working capital.
And with pressure on working capital at a 13-year high, businesses can’t afford to let a slowdown – no matter how temporary – affect them this summer. It’s therefore vital that firms have the right procedures in place.
Firms typically take a little longer to pay their bills during summer for a number of reasons, such as invoices waiting to be approved by customers who are on holiday. This shortfall between paying for raw materials and being paid for finished goods, for example, can put a strain on sometimes already stretched finances.
Equally, a seasonal business which benefits from extra demand during the summer could see orders increase dramatically, requiring them to have more cash available to invest in more stock. By successfully managing working capital, businesses can shorten this cycle and free up funds that can then be used to invest in inventory or staff, trade overseas and ultimately fund growth.
To help, Bank of Scotland has created a working capital management tool that allows our relationship managers to analyse these cycles with their clients, benchmark them against their peers and identify financial opportunities and challenges. One obvious steps that often takes a back seat is making sure that a firm is on top of all of the businesses’ income and expenditure. Not being aware of the money coming in and going out makes cashflow forecasting very difficult.
Sometimes, however, a slowdown is inevitable. To make sure that a business is equipped to deal with these circumstances, having the right financing in place can help support when a payment is unavoidably delayed.
Invoice finance, for example, lets a business access up to 90 per cent of the value of an invoice within 24 hours of it being issued.
It’s important to remember, however, that any changes made need to be made simultaneously across the business. All departments need to be on board with their goals aligned with the overarching aim of improving working capital.
All of this may seem timeconsuming, but getting your house in order this summer can make a world of difference. Working with a trusted adviser, now is the time to act. •Simon
Quin is Scotland area director for global transaction banking, SME, at Bank of Scotland