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Cash Flow, Finance & Accounting, Financial Management

How to Deal With the Holiday Payment Lag



How to Deal With the Holiday Payment Lag

If you’ve ever been in business during the holiday season, then you know it’s one of the strangest cash flow periods of the year. Your B2C clients may be taking time off and are unreachable. The accounting department for your corporate clients is empty (or they’re preoccupied with end of year taxes and budget allocation). Everyone is busy with festivities – as they should be.

Unfortunately, the most wonderful time of the year presents a problem for many small business owners: If everyone is out of the office, you’re going to be getting paid much later than usual for work you’ve already invoiced. Or, perhaps your products and services aren’t needed at the moment because no one is available.

Don’t be surprised if you already see this starting to happen around Thanksgiving. The worst part is that for some businesses it doesn’t end on January 1st. While some businesses may thrive in January thanks to New Year’s Resolutions, others may have a difficult time getting new customers because their market just spent all of their money buying presents and throwing parties.

Cash flow gaps can be a business owner’s biggest frustration as they try to pay expenses, meet payroll and expand. Often times the lag leads to owners covering the expenses out of their own pocket, which isn’t necessarily the smartest approach when running a business.

Everyone from small businesses to large corporations deal with cash flow gaps at some point, which means there’s plenty of information and options available for getting through them.

Plan Ahead of Time

The holiday payment lag is not an unexpected surprise. If you’ve been in business long enough, you know exactly when it starts and when it ends. Luckily, you have the ability to plan for the cash flow gap before it happens.

This may mean making extra money during busy months, saving a portion of the revenue to cover expenses during cash flow gaps or looking into options like alternative lending. It may even mean talking to your accountant and coming up with a game plan.

The point is there’s no reason for business owners to fall victim to an event they already know is going to happen. With proper planning you can weather the storm with ease.

Build a Cash Reserve Throughout the Year

Perhaps the most cost-effective way to account for cash flow gaps is to build a cash reserve throughout the year. This allows you to avoid paying interest rates, taking on more risk and having to cover the difference yourself.

One way to do this is to hustle a little harder during busy months in an effort to make extra cash. The extra cash is then set aside to help businesses get through the slower months.

Businesses have different cycles depending on what kind of industry they are in. For example, tourism is busy during the summer and then it may cool down during the winter months. That means a small travel agency can make extra money in the summer months and save a portion of it to cover expenses later in the year.

On the other hand, a gym may have an entirely different cycle than other small businesses. For instance, gyms are completely full in the beginning of January and then start to drop off. That means a gym owner can hustle a little harder to get those extra customers in January to help with payment gaps later on in the year.

Research Online Lenders

Unfortunately, building a cash reserve when you’re running a business isn’t always easy. Perhaps there were unexpected expenses, taxes were higher than you planned for or you used the funds to bring on more help. This is where small business financing comes into play.

It’s common practice for business owners to take out short-term loans to cover cash flow gaps. It’s a practice that everyone from the main street entrepreneur to the multi-million dollar corporation takes part in. This allows them to pay expenses and meet payroll while still working on expanding the business.

Bank loans are the most traditional form of lending for businesses, but according to statistics bank loans are not easy to secure. According to a 2015 Business News Daily report, bigger banks only approve about 20 percent of small business loan applications, while smaller banks approve a little less than half of all applications.

Fortunately, there are options for alternative lending available online. Alternative lenders typically look at more than just your credit history. They also look at profitability, years in business and your industry to determine your eligibility. Additionally, there’s less paperwork and you can get approved quickly.

For example, Kabbage reviews business data through our automated, online application. Customers are approved for small business loans in minutes with ongoing access up to $100,000.

Depending on your credit rating, the interest rates on an alternative loan can be more cost-effective than those found on a business credit card. Since loans aren’t revolving credit, you don’t have to worry about adding on to your debts like you would with a credit card.

If you’re in a cash flow bind, a platform lender may be a viable option for you so you can make payroll and pay expenses. Just make sure to take a close look at terms and fees before committing to anything.

Use a Business Credit Card

Using a credit card should be a last resort, but if used responsibly they can get you through a cash flow gap. According to the National Small Business Administration, about 37 percent of small businesses rely on credit cards for capital. The report claims business credit cards are easier to attain than loans.

Of course, this only works if you use the card responsibly. That means paying the balance in full each month, taking advantage of a 0 percent interest promotion or comparing the rates and fees of the credit card to that of other financing options to see which is the better deal.

The Bottom Line

Small businesses don’t need to fall victim to the holiday payment lag. Whether they decide to save cash or use business financing, they can rest easy knowing that they can overcome cash flow gaps.

What type of financing do you use to get through cash flow gaps? Leave a comment below and let us know.


Kabbage Team

Kabbage is here not only to provide access to the small business funding you need, but to also help you grow your business through free marketing tips, webinars, tools and more. Is there something you'd like us to cover or want to get your small business featured on our blog? Send us a note at