Still full from Thanksgiving? Same here. The turkey should be long gone by now (if it isn’t, please don’t eat it), but the pie may still be hanging on. While we digest, I want to talk about why Q4 is so hard on cash, even for businesses that are doing well.
One question for you
What’s the one thing that tends to squeeze cash flow in Q4? A slow-paying customer? A supplier who needs a deposit? Or simply too many opportunities landing at once? Keep your answer in mind as you read on. My guess is it has something in common with Thanksgiving dinner.
Everything, all at once
If you hosted Thanksgiving dinner this year, you know the challenge: everything needs the oven at the same time, and everyone expects to sit down at six. Every year someone does the math: the turkey needs a few hours at 325, the pie wants 375, and the potatoes are somehow in there too. At that point it becomes clear the problem isn’t the food. It’s the oven. (Somewhere around 4:30, someone usually suggests the barbecue.)
Your oven is your cash
For businesses with a December 31 year-end, the last quarter brings its own pile-up. Customers want orders delivered before their books close. Suppliers may offer better pricing on volume or announce January price increases. And the cash you commit today may still be tied up when your year-end financials are prepared.
Each of those is manageable on its own. Together, they all need cash at the same time, and customers who pay in 60 to 90 days often won’t send theirs until January, long after the guests have gone home.
Finding a second oven
Experienced hosts don’t solve the oven problem by cooking less. They find more room. The right fix depends on what’s actually causing the crunch, and in Q4 we tend to hear one of two things from business owners.
“I’ve won the order, but I need money to pay my supplier before I can deliver it.”
This is where Purchase Order Financing comes in. You have a confirmed order from a creditworthy customer, but your supplier wants to be paid, or wants a payment guarantee, before they’ll produce or ship. Capitally steps in on the supplier side and covers up to 100% of the product cost so the goods can be made and delivered. Once your customer receives the goods and you send the invoice, that invoice is used to repay the PO financing. Often, this is done through invoice factoring, so you aren’t waiting 60 to 90 days for your customer to pay.
PO financing suits businesses that buy goods from suppliers to fill customer orders, including newer or fast-growing companies without much equity to draw on. Approval depends mostly on the strength of the order and the customer behind it, so a thin balance sheet isn’t automatically a barrier.
“I have the financial strength to make a strategic purchase, but I don’t want to tie up my working capital doing it.”
This calls for Supply Chain Finance. Your business is established and your credit is solid, and Q4 has brought an opportunity worth acting on: bulk pricing, a supplier discount, or a chance to stock up before January price increases. SCF funds that inventory while it’s in transit. Capitally can issue a letter of credit to your supplier, so the goods ship without you paying up front. When you pay the SCF invoice, the transaction is complete.
SCF is short-term financing for periodic purchases, not day-to-day operations. It’s based on your creditworthiness, so you don’t need to pledge other assets or take on long-term debt. It’s designed to sit alongside your existing bank facilities, and before you go ahead, we’ll review how it fits with your current loan agreements, ideally with your accountant or banker involved.
Not sure which one fits?
That’s a good conversation to start with us. Tell us what’s happening in your Q4, and we’ll help you figure out whether either solution makes sense. Book a conversation with our team.
