Nearly every industry experiences a peak season when sales surge for products or services at different times of the year. This rapid rise in demand can be a blessing for the well-prepared or disastrous for retailers that fail to meet the challenges. Whether your business supplies stores for the back-to-school rush or strategizes for Black Friday sales, meeting customer expectations during seasonal shopping spikes can be tough.
Managing the challenges of peak sales periods is tricky. In most cases, businesses struggle with multiple pain points, such as ordering additional inventory, securing temporary storage spaces, completing equipment upgrades, and hiring additional employees.
Balancing these expenses with low sales margins during the rest of the year is crucial, or it can be difficult staying open until seasonal sales pick up again? By leveraging digital trade finance, buyers and sellers can finally secure the working capital they need when they need it most.
Consumers' seasonal spending has a direct impact on a business's cash flow. Depending on the product, peak seasons can be any time of the year. For many ecommerce businesses, the peak trading season is during Black Friday, Christmas, and the winter holidays.
Confectionary companies sell over $1 billion in sweets during Easter, more than any other holiday. If you sell sunglasses, you probably make the most sales during the spring and summer months. Different types of beverages also sell faster in some seasons than others. Beer sales peak in summer while wine sales increase during the autumn and spirit sales spike in winter.
Regardless of your peak season, your business needs a flexible plan to meet working capital requirements during sales fluctuations.
Both buyers and sellers face seasonal trade challenges that impact company finances, credit ratings, and taxes. Although many businesses have a rough estimate of what to expect from peak season purchases, unforeseen circumstances can unsettle predictions, creating short notice cash flow challenges.
Optimizing the inflow and outflow of cash year-round requires modern financing solutions to adjust to unique working capital cycles. Find out below how digital trade finance maximizes the use of every dollar.
Your inventory quantities can vary at different times of the year, or maybe you need seasonal holiday items for your product collection. Buyers may need short-term financing to get these hot-selling items but don't always have sufficient funds on hand.
Traditionally, purchasers would look for small business loans or buy goods using credit. But conventional financing methods can have costly fees and show up negatively on balance sheets.
Digital trade finance helps buyers get the financing they need and delay the payments up to 90 days. This convenience allows purchasers to stock up on goods in preparation for seasonal sales spikes.
Your equipment needs repairs, or it's time for an upgrade to stay competitive in your industry. Many seasonal sellers leverage equipment financing to rent machinery and other essential business equipment. This option allows businesses to lease the machines they need without having to purchase them.
But buying your equipment has tax advantages too. For example, US manufacturers can use machinery's depreciation value in their financial planning strategy. You can also write off the entire investment for a single tax year up to $1,050,000.
Sellers that are slightly short of meeting their equipment purchasing goals can leverage digital trade financing to increase short-term cash flow. Instead of waiting for order fulfillment deadlines, sellers can receive payments immediately after shipping the goods, accessing cash to put toward machinery purchases and long-term equipment savings.
During peak trade seasons, the need for storage will increase as much as your need for inventory. Adjusting your warehouse operations accordingly to ensure deliveries arrive on time can be complicated.
Successfully balancing both needs requires flexibility across the entire supply chain, especially in retail industries. Many businesses collaborate with delivery partners, allowing them to scale up or down according to sales peaks. But renting temporary warehousing can be costly in the long run.
There have been numerous developments in the logistics industry in recent years but perhaps one the most innovative has been the drop shipping model. With drop shipping, stock is sent directly to the end buyer, rather than stored in a seller's warehouse. This can be a great option for dealing with peaks, where long term investment in more warehousing wouldn't be justified. There have also been many technological developments in the area of inventory management software which can make categorizing and forecasting much more accurate, getting your warehousing team better prepared for the peak season.
Peak trade seasons often require additional temporary staff. You may also need your existing team to work overtime. Finally, you need to account for seasonal bonuses and employee incentives in your payroll projections.
Many businesses use industry benchmarks and the previous year's results to predict these expenses. But any number of factors can offset the accuracy of your staffing expense calculations. In an emergency, you don't want to be short-handed during a peak sales season.
Hiring seasonal staff for many industries has become easier with the development of the so called "gig economy". Employees would expect to be paid straight away, so delaying payment terms to your suppliers with a trade finance solution can allow you to use your cash reserves to pay these seasonal workers, only paying for the stock once the goods are sold and your balance sheet looks much healthier.
Business owners need working capital to fulfill existing operating costs and cover short-term debt obligations, such as ongoing loan payments. Ideally, you want to avoid a cash excess or deficit and would continually improve the accuracy of your working capital life cycle.
The working capital life cycle is the time it takes to collect account receivables on supplier invoices. Peak seasons can impact the working capital life cycle length, especially since buyers prefer sellers with the most favorable payment terms. On the other hand, extending the payment terms too long can drastically impact the seller's short-term cash reserves.
Digital trade finance can bridge the gap between buyer and seller interests, providing favorable payment terms to both parties. Buyers can take up to 90 days to pay invoices, and sellers get paid immediately after the goods' arrival. This type of arrangement offers a win/win situation for everyone in the supply chain.
Peak season can be a challenging time for buyers and sellers alike, with unique pressures applied to a company's finances and working capital reserves. Trade Finance can be a great solution to help companies cope with seasonal demand but most traditional trade finance solutions fail to bridge the gap between buyers and sellers to unite the interests of both parties. MODIFI's advanced digital platform streamlines payment processes, allowing companies with limited cash reserves to free up working capital. During peak sales seasons, MODIFI's pay-as-you-go model allows businesses to get that cash injection exactly when they need it, without having to commit to a long term financing solution. So next time the high season hits, you'll be ready for it!