With the COVID-19 pandemic showing no sign of slowing and employees leaving their jobs at a record pace as part of the “Great Resignation,” inflation is adding another roadblock for small businesses struggling to get by.
With inflation at 8.5%, its highest rate in 40 years, small businesses across the country are feeling the ripple effects and must update their financial systems.
For APS Phoenix, a pet nutrition business based in southern Florida, the cost of transporting pet food ingredients increased significantly over the past few months – with the price of some trucks even doubling. With prices rising, business owner Estefania Bertolini had no choice but to pass on increased costs to new contracts and customers.
Small businesses like APS Phoenix face increasingly difficult challenges caused by inflation and economic instability. As a result, they are searching for any and every tool available to overcome this imminent cash flow crunch. But before small business owners can look forward, they must look backward.
To inoculate businesses – particularly small mom-and-pop shops – against the threats posed by inflation, owners need to examine how they have managed their payment systems in the past. Only then can they learn how to optimize their cash flow in the future – both through the use of smart payables and smart receivables.
How can businesses minimize payment impact?
Here are five specific ways small businesses can fight back against inflation:
Have a centralized location for all invoices.
Many small businesses, especially those with multiple stores, lack a centralized location for invoices to be approved or rejected. Having a centralized location avoids an ad hoc process where invoices are scanned and emailed sporadically to the accounting department, leading to frequently missing attachments, errors in invoices, and delays.
Set up approval workflows for invoices.
Without a tight workflow with rules and processes for review and approval, invoices are prone to error and oversight. An ever-inflated economy with shrinking operating margins can negatively impact cash flow and make it harder for businesses to make large payments.
Reevaluate your supplier and vendor terms.
In these trying times, small businesses should also consider rereading or renegotiating their supplier and vendor terms to see if they offer a cash discount and consider upgrading their expense system to track payments automatically, ensuring that their business is not being charged for purchases not ordered.
Use a system that helps get paid promptly.
On the receivables end, businesses should ensure their payments flow and systems are as frictionless as possible, making it easy to get paid on time. There are many accounts receivable solutions that offer the ability for businesses to easily send customers invoices that include a payment link, allowing their customers to choose how and when to pay while also ensuring that the company receives those funds on time – or even early.
Especially in industries like transportation and construction, payment systems for businesses should be digital, allowing all bills, lien waivers, and other documentation to be accessible anywhere. It’s also vital that these digital systems allow for the real-time movement of funds. Small businesses should not have to wait for three or four days to access their payments.
Explore available credit facilities.
With interest rates still low, developing a credit strategy, particularly for large invoices, can significantly assist cash flow. Find out if suppliers provide credit in the form of net payment terms. If not, look for payment systems that allow credit cards to make payments or offer cash advances.
Review & update financial systems
As challenges to small businesses evolve, now more than ever, business owners must review old financial reports and continue to ask questions about how they receive and send payments. Business owners should be in constant communication with their bookkeepers, making sure that they understand their data and the systems keeping their payments flowing.
Change can be tough, but upgrading technology to a payments system that optimizes cash flow can help small businesses navigate this difficult and uncertain economic environment.
This article was originally published on PaymentsNEXT.