Avoiding insolvency during the holidays

In many industries, the number of insolvencies spikes in the first quarter of the year because of the increased risk of non-payment from customers who struggle to make sales after the holiday period, when demand typically falls. This is a clear pattern that businesses should aim to protect themselves from.

Failures in the first quarter of the year are common and usually the result from either poor sales over the holiday period or a precipitous drop in sales directly afterwards. When businesses aren’t making sales, their cash flow suffers and this can delay payment to their suppliers on time. This puts pressure on the entire supply chain.

The retail industry is particularly vulnerable since they often count on the Christmas rush to make the bulk of their profits for the year. Recent high-profile retail collapses have highlighted the risk to retailers and the knock-on effects are felt by wholesalers, manufacturers, employees and other stakeholders.

Cost-intensive businesses must plan in advance to hold enough stock or materials over the holiday period. When businesses pay for inventory upfront and then don’t sell all their stock or can’t meet demand, it can cause the business model to fall out of balance. Getting this delicate balance wrong can translate to cash flow issues in January and beyond.

As well as immediate cash flow concerns, there are long-term relationship consequences for businesses that can’t pay their suppliers on time. Businesses need to be proactive to avoid the increased risk of insolvency during the holidays. They should consider trade credit insurance, which lets them trade confidently even if customers don’t pay on time.

Working with a trade credit insurance provider can also help a business identify those buyers that are most at risk of not being able to pay, so the business can focus its energies on more valuable customers.

Insured companies tend to practise safer trading with up-to-date information on partners, so they can make better-informed, strategic decisions. With credit insurance in place to cover the shortfall from companies that pay late or not at all, these businesses can head into the holiday season with a clear strategy to maximise profits and growth.

Trade credit insurance can also lower the cost of borrowing, which lets businesses keep cash flow lines open, which can see them through the relatively lean times straight after the holidays. This takes away unnecessary worry about customers paying on time and lets the business keep its own payment schedule on track.

Staying ahead of the curve means arming business leaders with as much accurate information as possible, then using that data to set the company up for a successful holiday period, and thus avoiding insolvency.