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Avoid the pitfalls of overtrading

Nov 23 2005

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Is your business ready for the Christmas rush? You have a great opportunity to make the most of the annual surge in consumer spending, however, you also need to avoid seasonal excesses. Overtrading is one of these risks, where your business takes on orders and tries to fulfil them at a level that can’t be supported by working capital or current assets.

Overtrading is a common problem at this time of year. Customer demand increases sharply and while this may look good on paper, in reality you will have to meet these orders and pay out extra cash to suppliers while still covering staff costs and expenses often before the customer money comes in.

Recent start-ups and rapidly growing businesses are particularly vulnerable to overtrading which could be a potentially fatal problem. It’s essential to look out for the pitfalls of overtrading and take measures to avoid them.

Planning your cash flow timing is the most effective way to steer clear of the risks of overtrading. Paying your suppliers on time, making sure deliveries arrive promptly and billing your customers early enough are all essential.

Businesslink.gov.uk, the government’s national website, providing practical guidance for small and medium sized enterprises, has produced a series of guides to help you avoid the pitfalls of overtrading and ensure Christmas is a real cracker:

Avoid the problems of overtrading

Understand how overtrading can happen, how to spot the warning signs, assessing your cash needs and more.

Cash flow management

Read about cash flow and how it can be planned and adapted to suit your business and levels of demand. It also highlights common cash flow problems and how to avoid them.

Manage your suppliers

Find out how to build strong and effective relationships with your suppliers through negotiation, collaboration and management.

For an example of how overtrading can affect a business, visit businesslink.gov.uk

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