Firms are in for a tough first quarter, according to new research from Bibby Financial Services.

The research shows that the final quarter of 2009 and the start of 2010 will see trading conditions worsen.

Edward Rimmer, chief executive of Bibby Financial Services, says: “January is a crucial month for businesses and it can often be make or break. With large amounts of excess stock from Christmas often left over, financial liquidity can take a big hit as cash flow is tied up in unsold stock, and many customer invoices are left outstanding.

“We would urge small businesses to ensure they do not build up their stock levels more than is needed in anticipation of the Christmas rush. This will ease pressure on their cash flow to ensure vital commitments are met, such as paying their staff, meaning fewer businesses will be forced into making redundancies as a cost-saving measure.

 “We know from our own Business Factors Index that trading conditions during the first quarter of 2010 are set to worsen, and we would urge businesses to tighten up their processes to ensure that invoices are sent out promptly and correctly in order to keep the cash flowing and to consider renegotiating terms with their suppliers to ensure they are getting the best deal – perhaps by negotiating longer credit terms or flexible ‘sale or return’ deals that allow unsold stock to be returned.

“Although January is always a testing month for businesses, it is not all doom and gloom. The weakness of Sterling means that many businesses are seeing an increase in overseas trade, and this can only have positive ramifications all round.”