Help businesses battle inflation by sorting their cash flow - Paul Christensen

Inflation has emerged as a central theme of 2022’s macroeconomic outlook.
Paul ChristensenPaul Christensen
Paul Christensen

According to the Office for National Statistics, inflation has reached a 40-year high of 9 per cent, with prices estimated to climb even higher throughout the rest of the year. The British Chambers of Commerce (BCC) has subsequently slashed its forecast for UK GDP growth this year from 4.2 per cent to 3.6 per cent, highlighting the “suffocating effect of rising inflation” on business growth and investment.

In addition to this, the BCC also warns of heightened uncertainty due to supply chain disruption. This uncertainty, it predicts, will drive a “renewed economic downturn” by lowering business confidence and prolonging the impact of bottlenecks and delays.

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Businesses across the board are already beginning to feel the strain. A recent survey from Deloitte found that a quarter of CFOs reported significant or severe levels of supply chain disruption in Q1, while more than 70 per cent believe that their operating margins will fall over the next twelve months amidst an increasingly hostile trading environment.

None will feel the strain more than small and medium-sized firms, which - in contrast to larger corporates - lack the financial legroom to absorb the cost of price hikes. With the signs pointing towards a difficult road ahead for SMEs - for whom price hikes are now the single biggest challenge - what is the UK Government doing to help them weather the storm?

The Spring Statement represented an opportunity for the Government to inject the economy with the green shoots of recovery and renewal. Instead, the low uptake of measures that the Chancellor did mention – such as the Help to Grow scheme – suggests that vouchers and incentives are not enough to help smaller firms navigate the choppy waters of supply chain uncertainty and soaring costs. With the Help to Grow Management program hitting just one percent of its target, it’s clear that a different approach is needed.

If businesses are to successfully battle inflation, Westminster must find new ways of tackling the real cash flow problems that they face - like slow payments and difficulty accessing finance.

Slow and late payments, for example, continue to stifle small and medium-sized firms of much-needed cash, and have been a problem for years. Three in five UK businesses are currently owed money in late payments, while over 400,000 SMEs are on the brink of closure due to the late payment of invoices. Liquidity challenges are compounded by difficulty accessing finance itself. A recent survey by the Federation of Small Businesses found that the proportion of SMEs having their applications for finance approved was at a seven-year low.

These factors seriously dent the ability of firms to manage inflationary pressures, leaving them without the cash flow they need to adapt to soaring bills.

It doesn’t have to be this way. When the technology is ready and available to tackle these challenges, the Government must move away from vouchers, incentives and traditional forms of financing, and instead support companies to harness tech-driven solutions as a means of addressing these long-term pain points.

With inflation set to be a defining feature of the UK’s economic landscape for the remainder of the year, failure to do this risks thousands of business closures, taking with them jobs and investment which are needed more than ever.

Paul Christensen is the CEO of Previse, a London-based fintech

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