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How Seasonality Affects Your Accounts Receivable

Rahul Maingi

By admin, February 20, 2020

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Seasonal businesses help many people earn extra cash, or follow their passion.

Compared to a full-time company, though, managing the accounts of a seasonal business can be tricky.

Unless you’re exceptionally good at accounting or have a bookkeeper, keeping track of the accounts receivable of seasonal businesses can be confusing. There are instances when payments arrive later than they should in the off-season and these are times when maintaining accounts receivable becomes too difficult to manage.

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Let’s look at how seasonality can affect your business’s accounts receivable and the systems you can put in place to make keeping track of them easier.

How Does Seasonality Affect Your Accounts Receivable?

Seasonal businesses experiences times of high and low demand. For some companies, slow months can mean they remain completely dormant, getting no business at all. That’s why accounts receivable have to be calculated to keep these lean times in mind.

Here are a few factors to consider to successfully handle them.

If your business depends on a debt collector, have a clear plan about how to obtain payments in their absence during holidays. One of the simplest things to do is to seek out customers who owe you well before the holiday season begins. In this way they’ll have enough time to pay and your books will stay up to date.

This is a major factor that affects accounts receivable. Obviously, cash flow will be low in a seasonal business’s off times. Even though your product supply is year-round, demand may be seasonal. The slowest months are usually right before the peak season, but make sure every amount received is immediately documented.

This is a less obvious but important factor if your business is seasonal and the person handling your accounting is sometimes absent. For instance, they may attend trade shows during your off season which may see them busy preparing and unable to receive payments during this time.

For a seasonal business, managing accounts receivable becomes smoother when you get paid on time. This doesn’t always happen. Fortunately, there are things you can do about it.

Accounts receivable is elemental to bookkeeping. For seasonal businesses this can be maintained smoothly when you have the right cash management system.

Cash Management Practices for Seasonal Businesses

Ensuring year-round profitability is difficult when your business is seasonal. As mentioned, sales drop significantly after your peak season. But there are ways to ensure profitability for seasonal business throughout the year.

Updating Year-Round Cash Flow Projections

Maintaining cash flow throughout the year is a big challenge for any small business. When yours is seasonal, this becomes even more difficult. Therefore, it becomes necessary to plan your cash flow far in advance. A six-month plan isn’t enough; you need to maintain annual cash flow projections. In this way you better grasp the hurdles you may encounter during your peak and cash-poor seasons.

Having a Cash Cushion 

To deal with unforeseen business situations, be careful about how you spend your cash cushion. (Any company should ideally have enough cash on hand to sustain itself through at least six months of slow business.)

To that end, avoid investing huge amounts in expensive but non-urgent inventory items and maintain good credit.

Alternate income

To keep your accounts receivable smooth and profits coming year-round, an alternate stream of income is helpful. This is why many seasonal business owners have multiple such ventures, or a full-time job.

Early client payment

Encourage clients who are keen to pay in advance. Create incentives to make habitual late payers more enthusiastic about settling their bills.

The right cash management strategy helps make sure your accounts receivable is consistently maintained. This is a crucial factor that will help determine your business’s turnover and should not be neglected.

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