The holiday season can be a double-edged sword for SMEs: you need to take time to celebrate the year that was, while juggling unpaid invoices and stagnating cash flow.
ABS business turnover data shows that Australian businesses see a significant drop in revenue over the holidays that doesn’t pick up again until March. From FY16 to FY25, the average drop in turnover from December to January and February was 14.8% and 12.9% respectively.
This drop in turnover is correlated to CreditorWatch’s data on business failures, which shows that the number of businesses closing their doors typically jumps significantly from January to February. Business failures includes insolvencies, ASIC strike offs and voluntary closures of solvent businesses.
The volume of business failures has been increasing in recent years but also the degree of increase in failures from January to February. In FY24 and FY25, the increase was 69.1% and 184.9% respectively.
Business closures – Categories exposed to discretionary spending
FY17 – FY25
Data sources: CreditorWatch, ASIC
It’s no surprise that business failures increase during this time. Common reasons for cash flow disruptions include:
- Businesses being overwhelmed by extra invoices and not being able to keep up with processing them.
- Reduced headcount in credit and AR teams with staff going on leave.
- Pressure on operational expenses such as holiday pay and leave loading.
- A seasonal slowdown in demand.
These points highlight the importance of staying on top of collections at this time of year. We know that the longer invoices are delayed, the lower the chance of payment
Thankfully, there are a range of pre-emptive measures businesses can take today to put them in a more competitive position and keep cash flow smooth over the festive season.
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Revisit and re-prioritise your budget
Before the Christmas rush peaks, take a fresh look at your financial plan. Identify where seasonal spending makes sense, such as targeted promotions or stock clearance campaigns, and where costs can be trimmed or deferred, like discretionary team events. Clear priorities mean clearer cash flow.
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Tackle invoices early
You can’t let outstanding invoices linger. Timely communication can help to ensure your cash flow remains uninterrupted. Otherwise, you risk waiting until mid- to late-January (at the earliest) for invoice payment. Take a proactive approach to follow up on any pending payments before your customers go on leave. Where possible, you may be able to set up automated reminders for your clients regarding upcoming and/or overdue invoice payments.
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Properly credit-check new customers
Bringing in new business at this time of year is great – unless it increases your exposure to credit risk. Run robust credit checks on prospective clients to understand their financial position, payment track record and any adverse events. With that insight, you can adjust terms, request deposits or choose not to proceed with high-risk accounts.
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Keep watch on payment behaviour
Even reliable customers may struggle over the holiday period. Use tools that track and alert you to changes in payment behaviour. If a customer starts paying other suppliers late, you’ll know early and can tighten terms or follow up before it affects your own cash flow.
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Offer incentives for early payment
A small discount or reward for early settlement can accelerate a surprising amount of revenue into December. It also strengthens customer relationships by giving them a clear win for paying on time.
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Optimise and automate your collections process
If revenue is likely to soften, look internally for efficiency wins. Automation tools, especially across accounts receivable, can reduce admin time, improve accuracy and accelerate payments. Features like “pay now” buttons, SMS reminders and consolidated notices make it easier for customers to act quickly.
A good example is automating your accounts receivables by integrating automated systems into your AR workflow. This is one of the simplest ways to quickly improve your cash flow with every function optimised, from client invoice generation to the collections process.
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Build a seasonal cash buffer
If possible, set aside additional funds to cover the quieter weeks and any unexpected year-end costs. Even a modest buffer helps reduce stress and keeps operations running smoothly until normal trading resumes in January.
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Clear excess stock
Holding too much inventory ties up capital you may need over the break. Identify slow-moving items and move them quickly through promotions, bundling, or clearance campaigns. Turning old stock into cash now gives you more breathing room later.
9. Prepare for tax obligations
BAS, GST and PAYG instalments come around quickly after the holidays. If sales spike in December, your liabilities may also rise. Set aside funds in advance so February’s obligations don’t catch you off guard.
10. Delay non-essential major spending
The holiday period isn’t the ideal time to drain cash reserves on new equipment or permanent hires unless they directly support seasonal revenue. Hold off on big-ticket investments until the new year and keep your focus on maintaining liquidity.
Want to know more?
To learn more about how we can help you improve your cash flow management process, get in touch with our friendly team at CreditorWatch today.
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