If you operate a business with a seasonal swing during the fourth quarter of the year, you know all too well that it’s a double-edged sword. The increased profit is often the very thing that brings you into the positive, but it may also be challenging to prepare for and navigate the massive swing. Invoice factoring during holidays can be an absolute game-changer.
Challenges Small Businesses Face During the Holiday Season
The fourth quarter is the most profitable of the year for about one-third of businesses, according to the National Federation of Independent Business (NFIB). This naturally includes retail, wholesale, and trucking. The food, real estate, and IT and software industries also see significant upticks. The influx of business is positive but comes with many challenges, too.
Planning Holiday Sales Strategies
There’s a lot of pressure to maximize the peak season. Many businesses begin planning their strategies in the summer months to ensure they have enough time to prepare.
Procuring Inventory and Equipment
More than 40 percent of businesses say their costs rise during the fourth quarter due to increased inventory needs, according to NFIB.
Ramping Up Staffing
There are more than 73,000 seasonal employees in the United States, according to Zippia. Businesses often start recruiting in July and August to hire and train people by the start of November.
More than 40 percent of small businesses say their costs increase during the holiday season, per NFIB data. The average increase is around 25 percent, though some say costs rise as much as 75 percent.
Finding Cash Flow Solutions During Peak Season
Even if your business is profitable, you may not see any cash from peak season until after it’s over. This is because most businesses begin paying increased expenses while preparing for the season before revenue increases. Moreover, invoices are often sent monthly, and customers are given 30, 60, or more days to pay. This means work or goods delivered in November aren’t invoiced for until December and aren’t paid until January at the earliest.
Because of this, most businesses need some type of cash flow solution to help them through the season. Larger businesses save throughout the year or take out loans, but smaller businesses are rarely able to save anything and don’t typically qualify for loans. Some small businesses plan ahead and find alternate cash flow solutions, while others don’t realize they’ll have a shortfall until they run out of money during peak season.
Managing Invoice Volume
Around 65 percent of midsized businesses spend 14 hours per week managing invoices, according to Intuit. The investment can easily double or triple during the holidays for businesses with a seasonal uptick.
3 Benefits of Factoring During the Holidays
With invoice factoring, you sell your unpaid B2B invoice to a factoring company at a discount and immediately receive up to 95 percent of the invoice’s value. Some factoring companies even pay you on the day you submit your invoice. That means if your business delivers work or goods on December 1 and invoices the client that day, you can potentially be paid on December 1 instead of waiting until February or later for the client to pay. Once your client pays, you receive the remaining sum minus a small factoring fee.
It’s easy to qualify for factoring, and many businesses leverage it throughout the year. However, its unique benefits can be especially helpful for businesses during the holiday season.
1. Seasonal Business Financing without Debt
Factoring is often viewed as quick financing for businesses. However, it’s distinct because there’s no debt to pay back. The balance is cleared when your customer pays their invoice.
2. Efficient Invoice Management
Your invoice factoring company will follow up on invoices and collect for you. Some factoring companies take care of invoice preparation, too. By outsourcing these tasks to receivables experts, you’ll save time and are likely to collect in full sooner.
3. Predictable Cash Flow
Because inflows slow and outflows increase, it can be difficult for businesses to predict how much cash they’ll have at any given time. You get paid right away with factoring, eliminating this uncertainty, and allowing you to pay bills or order supplies with confidence.
Ways Businesses Leverage Invoice Factoring During Holidays
The money you receive from factoring can be spent however you wish. Businesses often use it for some or all of the following purposes.
Ramping Up and Planning
Sometimes, businesses must purchase equipment, obtain extra space before the holiday season, or bring on experts to help strategize. All these expenses can be covered through invoice factoring.
Many businesses double down on their marketing efforts during the holidays. This ensures you make the most of the season and attract new customers who may follow you into the new year.
Purchasing Inventory and Quick Access to Funds for Restocking
Most businesses need a surplus of inventory going into peak season. Factoring makes it easy to prepare and provides you with cash as needed throughout the season to ensure you have everything you need.
Recruitment, Training, and Payroll
If you need to increase your team for the holiday season, factoring can provide you with the cash to recruit and train staff. It can also help you cover payroll or pay contractors as needed throughout the season.
Tips for Making the Most of Invoice Factoring During Holidays
Following a few best practices can help you maximize the benefits of factoring while avoiding any potential misunderstandings.
Choose the Right Factoring Company
A few things to keep in mind when choosing a factoring company include whether potential partners have industry expertise, the speed of funding, and factoring fees.
Run Cash Flow Projections
Although factoring companies can sometimes wire you cash the day you submit your invoice, you can often save money by opting for an ACH bank transfer, which generally takes two business days. Do your best to get accurate cash flow projections well in advance. That way, you can plan ahead and are less likely to require emergency funding.
Keep Key Dates in Mind
Make a note of key dates on your calendar now. Highlight any periods in which you think you might run short on cash. Remember that payroll can deplete cash reserves, as can any sales you’re running due to increased labor and inventory needs. It’s also a good idea to note bank holidays such as Veterans Day, Thanksgiving, Christmas, and New Year’s Day, which can slow funding down or impact payroll.
Prepare for the Holidays and Beyond with Invoice Factoring
Invoice factoring is flexible, so you can set it up now and tap into it as needed throughout the holiday season and beyond. To learn more or get started, request a complimentary factoring quote.