The previous three years have been incredibly difficult for small and medium-sized enterprises (SMEs) around the world. They have faced unprecedented challenges such as Brexit and the COVID-19 pandemic, which have disrupted their supply chains, increased their costs, and reduced their demand.
In this blog, we will discuss how these crises have impacted SMEs in different sectors and regions, and how they can overcome them by using innovative financing solutions such as invoice finance.
The Current Situation of Stagflation and It's Effects on SMEs
What is Stagflation and why is it happening in the UK?
Stagflation is a period of high inflation and slow economic growth. It is a rare and undesirable phenomenon that can have severe consequences for businesses and consumers.
The UK is currently experiencing its highest inflation rate in 30 years, at 6.7% in September 2023, while its economic growth is projected to be only 1.6% in 2024, according to the Office for Budget Responsibility.
Several factors are contributing to the stagflation in the UK, such as:
1) The Brexit transition, which ended on December 31, 2020, created new trade barriers and uncertainties for UK businesses and consumers.
2) The COVID-19 pandemic, which caused lockdowns, social distancing, and travel restrictions, and disrupted the global supply chains and the labour market.
3) The rising energy prices, which are driven by the high demand and low supply of natural gas and electricity, and the geographical tensions in the Middle East and Russia.
4) The global shortage of semiconductors, which are essential components for many industries, such as electronics, automotive, and aerospace.
How does stagflation affect SMEs?
Stagflation can hurt SMEs in various ways, such as increasing their costs of production, such as raw materials, labour, and energy, and reducing their profit margins.
Additionally, many businesses see a reduction in their revenues, as consumers have less purchasing power and lower confidence, and demand fewer goods and services.
Finally, businesses may see a reduction in competitiveness, as they face more competition from rivals who have lower costs and higher quality.
How growing businesses can manage their liquidity and grow their business
Liquidity is the ability of a business to meet its short-term financial obligations, such as paying suppliers, employees, and taxes. SMEs must have enough liquidity to survive and thrive, especially in times of uncertainty and volatility. However, many SMEs face challenges in accessing liquidity, such as:
1) Having long payment terms or late payments from their customers, which create cash flow gaps.
2) Having difficulty obtaining loans or overdrafts from traditional banks, which have strict criteria, high interest rates, and collateral retirement.
3) Having limited options for alternative financing, which may not suit their needs, preferences, or goals.
How can invoice finance help SMEs improve their cash flow and access funds quickly?
Invoice finance is a simple and flexible way to get cash advances on your invoices, without giving up control of your business or paying exorbitant fees. You can choose which customers you want to finance and get the funds in your account within 24 hours. You don’t have to worry about your credit score, CCJs or past hurdles. You also don’t have to worry about chasing payments, as we will handle the collection process.
How does invoice finance work and what are the benefits for SMEs?
Invoice finance is a type of funding, where a lender will pay you up to 90% of an invoice value instantly. The remaining balance is then paid minus fees when the customer pays the invoice.
Invoice finance differs from other financing options, such as bank loans or overdrafts. These are based on your credit history, not your sales, and require collateral, interest, and repayments.
What are the advantages of invoice finance?
Speed: You can get the funds in your account within 24 hours, without any lengthy paperwork or approval process.
Scalability: You can get more funding as your sales grow. The more invoices you send, the more cash you can get.
No Debt: You’re not taking on any additional debt, you’re just getting an advance on the money already owed to you.
Stagflation and supply chain disruptions are serious threats for SMEs, but they can also be opportunities for innovation and growth. By leveraging invoice finance, you can improve your liquidity, access funds quickly, and grow your business in this challenging environment.
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