The Christmas Shutdown Is Not a January Problem

The calendar falls badly this year. Christmas Day is a Friday and Boxing Day a Saturday, so the substitute bank holiday lands on Monday 28 December. New Year’s Day is a Friday too. Add the weekends either side and the natural break runs from Christmas Eve through to Monday 4 January, with one awkward working week stranded in the middle that half your supply chain will not turn up for.

Most firms plan for this. They budget for a fortnight of no production. What far fewer plan for is the Christmas shutdown cashflow gap, because it does not open up in December at all.

The shutdown does not cost you in December. It costs you in February, when the valuation you missed finally turns into a payment.

What actually stops

In construction, getting paid is not triggered by finishing work. It is triggered by a date. The contract sets out when you apply for payment, when the work is valued, and when the money is due. Those dates run on a monthly cycle and they do not care whether anyone is on site.

So the risk is not the fortnight of lost output. It is the valuation that does not happen because the quantity surveyor is off, the site is locked and nobody has measured anything. Miss a December valuation and it does not happen in early January either, because the first week back goes on remobilising. It slips a cycle. The payment that should have landed in January lands in late February. If you are paying subcontractors out of money you have not received yet, you now carry them for an extra month.

What does not stop

• Wages are paid early. Most firms pay December wages before Christmas, pulling a whole payroll forward into a month with less coming in.
• Holiday pay goes out through the shutdown, for people who are not producing anything.
• PAYE, pension and CIS deductions fall due in January on work done in December.
• Supplier invoices land in January. Materials bought for January starts tend to fall due on end of month following terms, so the bills arrive while the valuations have not.
• Tax dates cluster. Corporation tax for a 31 March year end is due on 1 January, and the VAT bill for the December quarter falls due in early February, for a quarter in which you invoiced less than usual.

Why Christmas shutdown cashflow bites in February

There is a widespread belief that January is when businesses fail. It is not really true. Allianz Trade looked at the government’s own monthly insolvency figures and found no January spike at all. The peak came several months later, in the spring.

That makes sense once you follow the money rather than the mood. January feels hard because trade is slow and the balance looks thin. But the shortfall caused by a missed December valuation does not arrive until the payment that should have covered it fails to turn up, and on 30 to 60 day terms that is February or March. By then the business is busy again, which is the worst time to be short, because a busy period costs money before it earns any. It is the same lag that follows bad weather.

Manufacturers shut over the same fortnight and hit the same wall. Hauliers have the opposite shape and the same result: December is their busiest month, so they spend heavily on agency drivers, overtime and fuel, then invoice it all at the end of the month and wait out the quietest January of the year.

What to do about it in October

This is a planning problem before it is a funding problem, and most of the fixes are free.

1. Find your December valuation date and put it in the diary today. Then agree with the contractor, in writing, when the pre Christmas valuation will happen and who is doing it. This one step is worth more than everything else on the list.
2. Get the December application in early. Not on the deadline, while there is still somebody at the other end to query it.
3. Off hire the plant before you break up, not after.
4. Work out your February position now, assuming one valuation slips. If that number is uncomfortable you have two months to act, which is a better place to be than finding out in February.

Where invoice finance fits

If the gap is still there once you have done all that, the question is how to bridge two months without taking on a debt you then repay out of a thin first quarter.

That is what invoice finance is for, and it is worth explaining plainly because most businesses have never come across it. Selective invoice finance works one invoice at a time. You pick an invoice that has been raised and approved, and we advance up to 80% of its value, released immediately once the invoice is approved. The remaining 20% is not ours: it comes back to you when your customer settles, less our fees. Because it clears itself when the invoice is paid, it is not a loan and there is nothing to repay out of next month’s trading. There is no long term contract, no obligation to put your whole ledger in, and nothing to pay in a month when you do not use it. Approval rests mainly on your customer’s creditworthiness rather than your balance sheet, and enquiring is a soft search with no footprint. Facilities run from £25,000 to £250,000, and for a business starting from nothing, first contact through to funds can take as little as 48 hours.

Where this is the wrong answer

• It cannot fund an invoice that does not exist. This is the one that matters for a shutdown. If the valuation never happened, there is nothing to advance against, which is why getting the December application raised and approved is first on the list above and not an afterthought.
• It does not fix a pricing problem. If the job is loss making, bridging the gap funds the loss for longer.
• It needs business customers on credit terms. Cash sales and consumer work have nothing to advance against.
• The invoice has to be owed by a business in England or Wales. We do not buy overseas debt, and for legal reasons Scotland falls into that category too.

If February looks tight

The firms that come through a shutdown well are not the ones with the most cash. They are the ones who knew in October which valuation mattered and made sure it happened before the gates were locked.

If you have run the numbers and February looks uncomfortable, it is worth a conversation now rather than then, when the options are fewer and more expensive. We will tell you if it is not the right answer for you.

Get a Same-Day Assessment · t: 020 3617 2021 · m: 07766 835432 · hello@selectinvoicefinance.com