Cash flow—or the lack thereof—is often cited as a major factor affecting long-term business viability. For small businesses, cash flow can be particularly challenging during certain periods of the year.
Before diving into the challenges, let’s clarify what we mean by “debtor days.” This is the average time it takes for your customers to pay their invoices after being billed. For example, if your debtor days are 45, it means you’re typically waiting 45 days to receive payment after sending an invoice. The longer your debtor days, the more time your business capital is tied up in unpaid invoices.
As the calendar year draws to a close, small businesses face distinct financial pressures. When business owners and their teams take a well-deserved break in January, the inflow of payments often slows down. Meanwhile, expenses continue to accrue, creating a timing gap that can strain business cash flow.
Our data shows that January has the highest debtor days at 61, significantly above the yearly average of 47. March and July also trend above average at 58 and 50 days, respectively.
While seasonal payment cycles have long been accepted as a normal part of business, digital transformation is challenging this status quo. Today’s technology enables instant payments and real-time tracking, yet many businesses still operate under payment terms designed for a paper-based era.
This raises important questions about whether these extended payment cycles are serving anyone’s best interests. While larger companies might prefer longer payment terms, small businesses – from builders to transport operators to manufacturers – need consistent cash flow to pay staff, buy materials, and take on new jobs. When you’re running a business with weekly wage bills and regular supplier invoices, waiting 60+ days for payment doesn’t reflect the reality of how your business actually operates.
While seasonal payment cycles may be a current reality, businesses that thrive will be those that adapt their payment systems to match modern commerce. This might mean leveraging new technologies, reconsidering traditional payment terms, or exploring innovative finance solutions that better align with your business model.
The key is to balance managing current cash flow challenges while staying open to new approaches that could fundamentally improve how businesses handle payments. By understanding these patterns and planning accordingly, you can better position your business for success throughout the year.