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The holiday season cash flow hack your small business needs

A small business owner wearing a Christmas sweater and using a credit card to pay business bills online.

‘Tis the season to be spending. U.S. consumers on the hunt for gifts and household items are expected to increase their holiday purchases by 14% this year to an average of $1,652. Businesses have their own expenses. At this time of year, they need to stock up to seize the opportunities that come with everyone being so jolly. 

That requires cash and lots of it. However, for various reasons, many operations, especially small or medium-sized businesses (SMBs), find themselves without enough money to spend before the holidays.

So, they’re torn between two bad options. They can hold off on any purchases, potentially leaving the business without enough inventory ahead of the most lucrative time of year. Alternatively, they can drain their reserves and let their cash flow run negative. This puts them at risk of becoming a statistic: 82% of businesses that shut down name cash flow issues as a major reason.

But, luckily, there’s a third option that allows SMBs to order inventory now and pay for it later after they’ve collected the revenue from their holiday sales. And, no, we’re not talking about a loan. A loan requires applications, comes with interest rates, and can take weeks to be approved. What we have in mind is instant and much more cost-effective.  

Before we discuss the solution, let’s understand the problem a little better.

The holiday cash flow blues

Cash flow represents the movement of money in and out of a business at a given time. When more money is coming in than going out, you have positive cash flow. Sometimes, however, and more so for SMBs, cash flow health can be seasonal.

Maybe you’ve had an unexpected expense such as a burst pipe or a busted machine, or maybe business was just a little slow in the past couple of months. Larger companies typically have deeper pockets to smooth them over but small businesses are a lot more vulnerable to cash flow problems. 

During the holiday season, the stakes are higher. Whether you’re buying made goods or need to secure raw materials and contract workers to fill orders, the weeks leading up to the holidays require a lot of cash moving around before you can collect on the earnings. After all, you can’t have holiday sales without sufficient inventory. But you can’t run your business on a deficit for long either.

Get extra time to pay

So, what can a small business owner do to cover pre-holiday expenses without crushing their cash flow? Pay their bills for goods, inventory, raw materials, and services by credit card, of course. 

When you swipe your card, the bill is paid on time while you get to defer the payment until your next billing cycle. Depending on the terms of your card, this could mean up to 60 days of additional breathing room, giving you sufficient time to collect your revenue during the holidays before you have to pay your current balance

You can think of paying your business bills with a credit card as getting a short-term loan without actually taking out a loan, filling out an application, or paying interest.  

And, you’ll also collect points, cashback, and other card perks for large transactions that typically go unrewarded.

What if your B2B vendors don’t accept credit cards?

This is a widespread issue. Unlike consumers who flash their cards at almost every purchase, business-to-business (B2B)Business-to-business (B2B)Business-to-business refers to operations done between businesses. B2B payments are transactions made between two businesses or companies. transactions typically require payment via bank transfer or, even worse and more common, check (yikes). 

There are many reasons why B2B vendors prefer traditional payment methods. Some of them are old-fashioned and want to have a tangible piece of paper in their hands. Others just don’t want to change anything in their workflows. At the end of the day, they’re the ones who decide how they want their money and if you want to maintain the stellar vendor relations you worked so hard to build, you’ll oblige. 

But, we’ll let you in on a little secret: Your vendors don’t even have to know how you’re paying. Digital accounts payable (AP)Accounts payable (AP)Accounts payable is an accounting term that refers to the outstanding bills or invoices for goods and services already provided to your business but that you haven’t yet paid for. tools like Melio allow you to pay your business bills with a credit card* while your vendors get paid however they like, via paper check or an ACH bank transfer.  

For a 2.9% fee, you get to stock up for the holidays and maintain your cash flow while your vendor gets paid on time and can stick with the workflows they’re comfortable with.

Cash in on holiday shopping

The holiday season is among the busiest and most lucrative times of the year for many businesses, especially in retail. Don’t let a temporary cash flow crunch keep your small business from benefiting. 

Sign up for Melio, a B2B payments platform built specifically for the needs of SMBs, to pay for your holiday stock with a credit card. This way, you’ll get your merchandise and keep your cash flow too.

*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.