Soaring inflation and the supply chain impact
As inflation hits 40-year highs, businesses are feeling the squeeze – so how can working capital solutions help companies, large and small, weather today’s economic environment and build a more resilient supply chain?
The global pandemic may have challenged supply chains in ways no one had imagined, but today’s macroeconomic environment is confronting businesses worldwide with new difficulties. Surging demand in the wake of the pandemic, combined with the impact of Russia’s invasion of Ukraine, has contributed to an increasingly turbulent economic environment. And topping the list of business concerns in this challenging market is the rapid rise in inflation.
Inflation is rising at the fastest rate in 40 years in the U.S. and the U.K., with U.K. inflation now at 10% and predicted to exceed 13% by October. Central banks are responding accordingly: the Fed hiked interest rates to a range of 2.25-2.5%. In August, the Bank of England increased rates to 1.75% in its sixth consecutive rise, up from a pandemic low of 0.10%. In Europe, the ECB raised interest rates for the first time in 11 years. Further hikes are expected in the months ahead.
In short, today’s environment is dramatically different from anything businesses have seen in recent years. And while the impact of soaring inflation on consumers is significant, it’s clear that companies of all sizes are also feeling the squeeze.
Taulia’s CEO, Cedric Bru, explains how our solutions can help you better manage inflation.
Inflation and the supply chain impact
As they get to grips with sizeable increases in the cost of everything from raw materials to transportation, firms must renegotiate prices more frequently with their suppliers. Meanwhile, long lead times and significant price fluctuations make it harder to forecast future demand and plan effectively.
Businesses cannot afford to ignore the impact of these developments. In particular, they need to understand what today’s challenges mean for their supply chains. For suppliers, 90-day payment terms can mean that by the time an invoice is paid, the value of the transaction is already lower than it was when the goods were shipped.
Many suppliers lack the reserves to weather the resulting erosion of their revenues. For example, a study by J.P. Morgan found that the median small business only has access to 27 days of cash reserves, meaning there is little room for maneuver during times of disruption. Without faster access to liquidity, there is a real risk that small and medium-sized suppliers might go out of business or be unable to fulfill orders – which would squeeze supply while driving up prices still further. And, of course, higher prices will only exacerbate the current inflation challenge.
Time for a rethink?
Thankfully, this isn’t the only possible future. Imagine a world where small, medium-sized, and large businesses can keep up with supply and demand, fulfill orders, grow their profits, and improve their supplier relationships. With a more resilient supply chain, buyers, suppliers, and customers all stand to benefit.
So, what is needed to enable this brighter future? In a word, cash. Cash is the oil in the supply chain machine: healthy access to cash ensures that trade runs smoothly and efficiently for all parties, improving the resiliency of the whole supply chain.
That’s where Taulia comes in. Businesses can access cash when and where they need it most with our suite of working capital solutions for buyers and suppliers, which includes payables solutions, receivables solutions, and inventory management solutions:
- Buyer-led solutions like supply chain finance (SCF) and dynamic discounting (DD) enable suppliers to get paid early, freeing up vital working capital and making it easier for suppliers to handle unexpected costs and invest in business growth.
- Our Accounts Receivable Financing solution allows suppliers to unlock the cash trapped in their unpaid invoices by selling receivables to the world’s largest pool of working capital investors.
- With our inventory solutions, companies can buy goods and then sell them to clients months later at today’s prices, plus a carrying fee – thereby protecting the transaction from having its value eroded by inflation.
In other words, our solutions can help different types of businesses mitigate the impact of inflation on the value of their transactions while reducing risk throughout the supply chain and freeing up the cash businesses need to survive and thrive. With more visibility and control over their working capital, businesses will be better placed to adapt to today’s economic uncertainty and build a resilient supply chain equipped to handle future volatility.
Bringing a decade of sector expertise and proven technology that customers trust, like Airbus, Nissan, and Vodafone, Taulia is helping companies around the world improve the stability of their supply chains. Get in touch to find out how we can help your business tackle inflation and thrive in the new economic landscape.