Seasonal demand puts pressure on more than a quarter of UK SMEs who are waiting 180 days to get paid at their busiest times of year.
Sleigh bells ring…are you listening? We are. Thousands of businesses across the country are listening too. This introduction may seem unseasonable yet, for more than a quarter of UK SMEs, the festive season is top of mind. That’s because they’re already gearing up for their busiest time of the year.
So while most of us are planning holidays in the sun, 27.4% of business owners are thinking about tinsel and tree lights. Figuratively of course – more likely they’re worrying about how to cover the cost of fulfilling an influx of orders that they may only be paid for 180 days down the line.
WHAT IS SEASONAL DEMAND?
This refers to peaks in business activity that correspond to things like the seasons, school holidays and other religious or cultural calendar events. Keen to find out more about these seasonal peaks, our latest MarketInvoice Business Insights research takes a closer look at the topic.
According to our research, businesses start preparing 3 months in advance to keep up with seasonal demand. For 23%, the biggest pressure is having enough staff to fulfil orders closely followed by 22% who are concerned with paying suppliers. The challenge for these businesses is having to spend money now, knowing they’ll have to wait until much later to get paid.
HOW DOES SEASONAL DEMAND AFFECT CASH FLOW?
Imagine an order comes in on day 1. The business then sets about fulfilling that order, paying suppliers for materials or increasing their wage bill as they hire more staff. On day 100, the business delivers the order and sends an invoice.
Our Seasonal Peaks report found that the majority of SMEs (72.5%) are selling their goods or services to large corporates and blue-chip companies. Debtors like this take an average of 80 days to pay invoices which, at peak times, are typically worth £47,203.
What that boils down to is this: UK SMEs are waiting a whopping 180 days between receiving an order and actually getting paid for it. That means they need 180 days worth of working capital to cover the costs associated with completing £47,203 worth of work.
HOW CAN BUSINESSES PREPARE FOR SEASONAL DEMAND?
The vast majority (87%) of the businesses we surveyed said that cash flow constraints make it impossible to take on more orders. Yet, two-thirds (67%) aren’t seeking any advice about how to manage these seasonal peaks in demand.
There’s no doubt that seasonal peaks are tough to manage but, by being prepared, businesses can smooth the impact on cash flow. In speaking to their accountants, brokers and other trusted financial advisors, UK SMEs can empower themselves with the many financial tools available.
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