For consumers, the holiday season typically begins with Black Friday, which is the day following Thanksgiving Day in the United States. Businesses, on the other hand, start thinking about the holidays much sooner. After all, they need to prepare well in advance to ensure that they can make the most of their most important time of the year.

For a large portion of the economy, the holidays are a make-or-break event during which they generate a disproportionate amount of their annual revenues. To take advantage of—and profit from—such a predictable spike in demand, though, businesses need to ensure that they have the products that consumers are looking for, and the staff to sell them. Moreover, they need to advertise to ensure that their prospective customers actually show up, rather than spending their holiday budgets on competitors.

This can quickly become problematic, because not every business can afford to ramp up supplier purchases while also funding a marketing campaign. To ensure that they can maximise their revenues, businesses need to access additional funding. Supply chain finance, along with other alternative financing tools, such as invoice finance, gives them access to both the time and money they need to make this year the best Christmas ever.

Businesses need the Holidays

The fourth quarter, sometimes called the “holiday quarter,” can make up for a host of economic problems faced by businesses during the first three quarters of the year. This is particularly important for retail businesses, which have been struggling and going into administration in record numbers for years. Many retailers earn more than 30 per cent of their annual revenues during the holidays, giving them the chance to recover from what has been a difficult year. Similarly, businesses that manufacture consumer goods, like Apple or Samsung, rely heavily on fourth quarter sales.

While the holidays translate to a spike in sales for most businesses, it takes a lot of work to maximise the benefits that the holiday season has to offer. Running out of stock, or being understaffed, can limit the amount of revenue that businesses can generate. Worse, failing to advertise appropriately can leave an otherwise prepared business standing idle as holiday crowds wander past. Coming up with the necessary capital to prepare fully is essential.

Using supply chain finance to pay for holiday investments

Supply chain finance allows businesses to get the funds they need up front, without taking out any loans. Instead of giving the business any additional capital, as with a loan, it helps them to ensure that suppliers are paid, while extending their payment terms until after the holiday season. The result is that businesses can hold on to their existing working capital longer, and put it to other uses in the meantime.

Specifically, the business works together with a financial institution like Fifo Capital to pay suppliers. The financial institution extends payment on the business’ behalf whenever a payment is due, while the business itself isn’t required to make payment to the financial institution until up to 90 days later. This means the business can make supplier purchases of all kinds before the holidays, knowing that payment for those purchases won’t be due until 90 days after the actual negotiated payment date with the supplier.

Paying suppliers early

While B2C businesses see the most direct benefits from the holiday season, their B2B suppliers need to be ready to support their clients. Like their clients, these businesses will often also need funds to boost output during this time. Fortunately, Fifo Capital’s supply chain finance allows these businesses to negotiate for earlier payment.

To receive funds before payment is actually due, the supplier simply offers a discount to the business in exchange, which the business can then choose to accept or not. If it accepts, the payment is issued by the financial institution. The business, on the other hand, can still defer its own payment to the financial institution by up to 90 days, so that both the supplier and the business benefit.

Of course, supply chain finance isn’t always enough. Funding advertising campaigns and hiring and training casual workers requires significant up-front investment, after all. For this, businesses can take advantage of other financing options, such as invoice finance, to get the funding that they need. Invoice finance, for example, allows businesses to work with their financial institution to receive an advance on their outstanding revenues. You can learn about this and other financing options by getting in touch with your financial representative at Fifo Capital.