Home Brexit UK’s post-Brexit supply chain crisis is hitting SMEs hard

UK’s post-Brexit supply chain crisis is hitting SMEs hard

20th Oct 21 1:21 pm

KFC is struggling to secure chicken, McDonald’s is finding it hard to make enough milkshakes, and supermarkets have been selling out of bread faster than ever. As each day goes on, more and more high-street brands are hitting the headlines and joining the battle of the post-Brexit supply chain crisis. But it is not just the big brands that are having a difficult time.

The crisis is hitting SMEs particularly hard too. SMEs have already been through a highly challenging year, to say the least, with the pandemic. According to the Bank of England’s research on two million UK SMEs, there was a 30 percentage point reduction in turnover growth for the average SME. Approximately 168,200 small UK businesses are predicted to close within the year as three in five feel the negative impact of the pandemic.

Although the effective drive to vaccinate the UK has aimed to put the worst of COVID-19 behind us, a new crisis has entered the mix. It is estimated that Britain lost 25,000 European lorry drivers after Brexit as new immigration rules led to them returning to their countries of origin. The knock-on effects of this have been the 100,000 driver shortfall that Britain is now experiencing, accelerated by the pandemic and an ageing workforce.

This labour issue, along with raw material shortages and rising commodity and global shipping prices, means that suppliers have ever-increasing cost pressures.

Suppliers are passing these higher costs and pressures on to customers, who in many cases are simply having to absorb them. This is a much simpler feat for a larger business with significant cash reserves to fall back on during hard times.

However, SMEs typically do not have this luxury, and they are up against bigger businesses as everyone battles over limited resources. To secure supplies, companies are typically expected to pay the suppliers upfront. In these challenging times, what is being seen more and more across the world is that a premium payment is being required.

The trouble is that for SMEs, customers are not necessarily paying them sooner, which means cash is limited. Cash flow is an increasingly challenging topic for SMEs, who have often already hit their borrowing limits after the turbulence of the pandemic. This is where invoice finance can help businesses manage their supply chain, by allowing them to unlock cash tied up in as-yet-unpaid invoices.

It can do this by helping the business in several ways. The first is that invoice finance can allow the business to get paid sooner. The way invoice financing works is that it enables an SME to borrow money based on what their customers owe, meaning that unpaid invoices can represent money that will be paid to the business, bypassing the usual wait for the payment terms (which in some cases can be 90 days).

Individual invoice finance provides an immediate injection of cash, which can cover operational costs, payroll and growth. In this case, it can cover paying the immediate and premium fees that stretched suppliers are currently prioritising.

The second is that invoice financing can help SMEs to grow their business by expanding to new customers. Specifically, it can offer credit terms to new customers, which can be a highly effective tool when it comes to winning new business. This means that new customers will have more options on when and how to pay, making it easier to bring them on.

Lastly, invoice financing can price in the cost of finance if customers want terms.

The above steps allow SMEs to be fast and flexible in how they onboard new customers and can help them to offer attractive terms when cash and supplies are both increasingly tight. In a time when challenges seem to be coming in from all angles, it has never been more important to consider new routes and methods of helping businesses to run smoothly.

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