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6 Tips to Access Working Capital During the Busy Build Up to the Holiday Season


The holiday season can be lucrative for SMEs. In fact, holiday sales account for around 20% of annual total sales for most businesses. And for some, it can be as high as 30%. 

But in order to capitalise, SMEs need to ensure they have access to the necessary working capital in the busy period leading up to the holiday season. 

Here are some specific areas of business you need working capital for and how to obtain funding.


1. Buying Extra Inventory

“More than half of small businesses say that inventory management is their biggest worry for the holiday season,” explains business and tech expert Ellie Lord. “And there’s no wonder: retailers lose trillions of dollars every year because of poor inventory management, which can cause costly stock-outs and overages.”

Failing to have enough inventory can create friction with your customers, diminish revenue and potentially damage your brand reputation. Given that at least ⅕ of all annual sales come during the holidays for most businesses, you can usually bet that you’ll need to buy extra inventory to keep up with demand.

One of the best ways to fund the purchasing of extra inventory is with debtor finance, where you obtain a line of credit by using outstanding accounts receivable as collateral. Simply upload the same invoice to a lender that you send to a client, wait for approval (this typically happens within 24 hours) and receive up 95% of the value of the invoice, less any fees. The remaining 5% is paid to you once your client pays in full. 

So rather than waiting for a client to pay you — a process that can take 30, 60, 90 days or even longer — this allows you to get a cash advance within a day or two. Use that money to buy the inventory you need to keep up with customer demand, and keep your shelves stocked at all times.

Our Tradeline solution can also help with sourcing extra inventory, by financing and assisting the import of goods for resale.


2. Hiring Extra Manpower 

Another critical part of staying ahead is having the right number of staff on hand. Whether you need extra manpower for revving up production or for customer service based roles, you’ll likely need to increase your workforce.

And there are two main ways to go about this. You can either hire new staff members or pay your existing employees more to work additional hours and offer overtime pay. Regardless of the route you take, you’ll need to increase your payroll, which obviously requires money. 

The type of financing that tends to work best in this scenario is debtor financing where you leverage outstanding invoices to access working capital and improve cash flow. That way you’ll have enough funds to keep up with payroll during this hectic time and can ensure you consistently have enough manpower to cover the workload.


3. Manufacturing Additional Products

Or if your business is on the other side of production and manufactures its own products, you’ll likely need to increase production levels significantly. This means you’ll need to procure more raw materials, increase your overall efficiency and potentially consider investing in new technology during this demanding time. 

You should also be proactive about taking preventative measures to maintain existing equipment to keep it running in optimal condition. Any major downtime can cripple operations and hurt your production, so it’s important to be diligent about machinery maintenance. 

There are two main funding options that can help with manufacturing additional products. One is debtor finance, which is useful for generating working capital to pay for raw materials and investing in new technology. Instead of waiting for invoices to clear so you can buy what you need and having your hands tied, you can accelerate the process and keep production moving. 

The other is asset finance, which is financing that’s tied to assets like your plant, equipment or property to free up cash flow. For instance, you could finance significant equipment or your commercial building to get the money you need to pay for raw materials, maintain equipment and rev up production. If you’re already using debtor financing facility, asset finance provides a flexible means of furthering your company’s growth.


4. Purchasing New Equipment

There’s also a good chance you may need to buy completely new equipment to keep up with production. Not only can this help you in the short-term for meeting consumer demand during the holiday season, it can also be beneficial in the long run and be a catalyst for growth and expansion. And once you’re in the peak of production, you’re much less likely to deal with major machinery breakdowns, which can prevent a lot of headaches.  

Of course new equipment can be costly, and many SMEs simply don’t have the money to pay for it out-of-pocket. Fortunately, equipment finance is a viable solution that can help you obtain the funding you need. 

Here are some of the specific types of assets that can be financed:

  • Equipment - Forklifts, manlifts or company vehicles
  • Machinery - Lathes, milling machines or drilling machines
  • Vehicles - Trucks, tractors or excavators

Equipment financing is ideal when you need to boost production during the busy build up to the holidays but don’t have the money for major purchases in one lump sum. This allows you to borrow up to 100% of the asset value with a fixed term and rate, and you can pay it back over time.


5. Finding Additional Storage Space

Finally, some SMEs will face challenges storing all of their additional inventory. While your current warehouse may be sufficient throughout the rest of the year, you may find that it’s simply not capable of housing all of your products during the holidays. As a result, you’ll need to explore other alternatives, which can include temporarily renting offsite storage or storage trailers. Or if you want to think long-term and ensure you have adequate storage for future holidays (and growth in general), you may want to upgrade to a larger facility. 

Usually the best way to go about that is with debtor finance, which will provide you with access to the working capital you need to make this transition. That’s something Sydney-based cooked meats specialist Ribs and Roast did. Their original 300 - 400 square meter factory was holding them back because they were struggling to keep up with a growing order volume. 

“We were getting so much interest in our products, it was very frustrating having to turn down business due to our limited capacity,” says general manager Ryan O’Shea. But with debtor finance, they were able to upgrade to a bigger and better factory of over 1,500 square meters — a move that enabled them to keep up with a period of major growth of 50 - 60% month on month.


6. Securing the Funding You Need

The holiday season creates immense opportunities for SMEs, with the potential to land new customers and crank up sales. However, it also comes with some considerable expenses, which can create stress. During these peak periods, operating costs often increase. Whether it's staff working overtime, peak season courier fees, or just the additional running costs from the new opportunities coming in

As a business owner, it’s important that you know which areas will require working capital and have a game plan in place for accessing funds. Being prepared for the expenses listed here should help you stay on track and make the most of the holidays.

Let us touch base and show how we can help.

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