We hate to point out the obvious, but sky-high inflation is making it more difficult for businesses to make ends meet these days.
And it’s also placing a heavy burden on companies’ cash flow efforts.
The economists who predicted “temporary” inflation pains more than a year ago aren’t apologizing for misreading the economy so poorly, so we won’t try predicting when the pain – particularly for small- to mid-sized companies – is going to ease.
You may want to discuss inflationary effects on your customers’ ability to pay on time and in full with your finance team. The numbers aren’t pretty.
20% and up bump in costs for 70% of small businesses!
Would you believe a whopping 29% of small business owners are reeling from a 40% or higher increase in costs this year?
According to a recent report from Business.org, “71% of small-business owners reported at least a 20% increase in costs for supplies and services.” The report, “The Effects of Inflation on US Small Businesses,” shows how month-to-month inflations increases are higher than in 1982.
Back in those days, savvy finance pros recognized that the Reagan tax cuts on hold until January 1, 1983 would spur businesses to start spending more. So far in this mid-term election cycle, we’re hearing little to no good news from either side of the aisle, except perhaps for Senate Democrats lacking the votes needed to raise tax rates on the highest earners.
Interest rate hikes by the Federal Reserve should calm down inflation based on history. How much the rate hikes will help and when we’ll start to see prices come down is less certain. For example, trucking forecasters warn the worst effects of diesel prices are yet to come.
What you and your accounting team can do now
It’s important to remember long-term customers who’ve paid their bills are worth their weight in gold.
Obviously you can only go so far in extending credit or payment deadlines. In these tough times, good customer service skills will go a long way toward maintaining business relationships.
You may want to remind your Accounts/Receivable team to listen to customers’ concerns and express empathy as much as possible. Example: “We understand if you can’t pay on the 10th. What can we do to help secure payment as soon?”
Keeping customers that are struggling with higher costs out of credit & collections can save those relationships, and potentially boost their ability to pay sooner.
