Suppliers have put their prices up. But how many SMEs are passing that cost on? And what can options are out there to help manage the squeeze on profit margins?
There’s been a lot for business owners to deal with over the past two years. From the pandemic to Brexit, with shipping issues and fuel shortages along the way, it’s fair to say many of you have weathered a number of storms. But, true to form, SMEs are remaining optimistic and working hard to reach the next stage of growth and success.
For businesses in industries like retail, manufacturing and construction, the costs of materials, importing, storing and packing their goods have increased a lot. Recently we surveyed 1,000 SMEs across the country to find out how they’re dealing with increased prices from their suppliers over the past six months. What we found was that entrepreneurs are as resilient as ever; trying to maintain their customer relationships and outgoing costs despite increased prices.
So what can you do to protect your business when higher supplier costs mean narrower profit margins? We’ll take a look at the financing options out there that can support your business and maintain sales.
Why have prices increased?
Four fifths (79%) of SMEs have had to fork out more to their suppliers in the past six months. The main reason they gave was an increased cost of raw materials. It simply costs more to make the products suppliers are selling, And it’s not just in the UK – this is an issue felt around the world. On top of this, supply chains have been disrupted, and we’re all too aware of the shortage of truck drivers on British roads at the moment.
To pass on or not to pass on…
We asked business owners about how they were managing the price increase. Of the 79% that had experienced price increases, 40% of them are absorbing the entire cost themselves instead of passing it on to their customers right now. Over a quarter (27%) are absorbing most of the cost and passing on just a portion to their customers. And just a third (33%) are passing it on entirely.
The long view from most businesses seems to be maintaining their customer relationships. By protecting customers from current price increases they're more likely to hold on to their sales. Those who have had to put up their own prices have seen two thirds of their customers ordering in smaller amounts or using their services less.
Taking the pressure off your bottom line
If you want to keep your customers happy and don’t want to pass on price increases to them, you might be thinking about funding options. A third of the SMEs we surveyed have taken out loans or other finance facilities to help them manage the increased cost of doing business. To keep your finances looking healthy and cover increased costs there are a few types of facilities you could consider:
- Flex loan – if the increases you’re seeing aren’t too big and aren’t across everything you need to purchase, then a flex loan is a great option. You can think of it as working capital on demand. With a flex loan, you can access up to £100,000 when you need some extra cash. You can withdraw it all at once or request smaller amounts as needed. That might be to help you cover staff costs or other financial commitments you have that are being eaten into by the higher costs of paying your suppliers. You set your own repayment schedule, and you can withdraw and repay as many times as you like. Find out more about how a flex loan works and how to apply here.
- Recovery Loan Scheme (RLS) loan – the government-backed scheme is perfect for businesses that need a more substantial cash injection. You can apply for between £50,000 and £350,000 to support your business as the economy rebuilds and you target growth. With a MarketFinance RLS loan, you won’t start paying back the loan until the Spring, paying just the interest for the first six months. We’re open to applications until June next year. Head here for our guide on which businesses the scheme is good for and how to apply.
- Invoice finance – if your customers are businesses themselves, then invoice finance is a fast and reliable way to access the cash you’re owed. This kind of facility allows you to unlock the funds in your outstanding invoices as soon as you issue them. With invoice finance, you don’t have to wait out payment terms before you can start using the cash to fund that next business move.
What happens next?
The pressures on supply chains that started in March 2020 seem to be here to stay for a while. Until the costs of raw materials or shipping containers start to ease, it’s likely that your suppliers will keep their higher prices. But as the world gets back to normal, the challenges that your suppliers have been facing will hopefully ease. Finding the right funding to keep your business moving in the meantime should be a key part of your business strategy.
If you’d like to find out more about how we can support your business, head to our website here.
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