How to make your business stagflation-proof?

The last time you heard about stagflation * was probably in your economics class, covering basic macro principles. But here we go again, the rare combination of rising unemployment and high inflation is looming above the world economy.

The relatively rare economic phenomenon is mainly triggered by supply shocks or sudden rises in commodity prices. While the whole world will feel the effect of rising fossil fuel prices, the UK economy will experience it more than other developed nations in the G7. As the result, IMF predicts the growth to half to 1.2% in 2023, from the previously expected 2.3%. While inflation can go as high as 9%.

All these macroeconomic conditions undoubtedly will have an impact on regular businesses. Mainly due to the slow-down in investments, higher cost to produce and an increase in late payments by their b2b clients. The key to not just surviving, but striving during an economic downturn like this is to increase productivity and see where the processes can be improved. This way your business might get out stronger after the crisis than it was before. 

The State of the Economy Right Now

Recent numbers published by the Office of National Statistics show that consumer prices have increased by 7% in the past twelve months, mainly due to the rising energy prices. The last time inflation was higher than that was 30 years, back in 1992. Furthermore, the UK GDP fell by 0.1% in March and the quarterly GDP of 0.8% didn’t meet the estimate of 1%.   

All that macroeconomic data suggests that the economy is heading towards stagflation – a prolonged period of high inflation, low output and rising unemployment. The last time major economies experienced it was in the 1970s. This is a relatively rare economic situation. The tricky part is due to the economic policy conflicts- what would stimulate employment would speed up the rise in prices and vice versa. Usually, stagflation occurs due to supply shocks- a sudden rise in the commodity process. 

Consumers already feel the strain on their real income and are tightening their belts. While consumers are postponing their non-essential purchases, the small business owners will feel a real hit due to the lower demand, higher cost of production materials, and disruption in the supply chain. 

Martin McTague, the national chair for the Federation of Small Businesses has told FT that small business owners are scaling back their investments, expansion and take-home pay. 

What can we do to protect small and medium-sized businesses? Kolleno, the cash management cloud-based platform, has prepared working tips on how to protect your business. 

4 Strategies to Protect your Business

1. Strengthen Your Cash Flow.

Cash flow can be treated as a source of internal liquidity, especially during a time of crisis. Usually, when an unforeseen situation happens businesses can quickly apply for a business loan. However, the lending to SMEs is at an all-time low according to fsb.org.uk. Around 6 to 10 businesses affected by late payments. 

To make your business recession-proof during unstable times it is essential to look within. Cash flow can be a source of internal liquidity. To speed up the cash conversion cycle it is important to monitor the invoices and send customers timely reminders, your hard-earned cash hits the bank account as fast as possible. 

2. Increase Productivity

Increasing productivity is key when the economic climate is suffering a downfall. Automating manual work and diverting your workforce’s attention to more value-added tasks is key, plus it reduces errors.

By automating the accounts receivable management your business will be able to increase productivity, never miss an invoice, and eliminate errors. A whopping 88%  of Excel spreadsheets contain errors, so it is better to rely on modern technological solutions to track the accounts receivable. 

3. Don’t Give Free Credit to Your Customers

During the recession, the b2b clients will want to pay their suppliers as late as possible between 30 and 60 days after the invoice has been issued. In other words, it can be regarded as informal sales on credit by the supplier, but they are not. At the beginning of the year, 58% of SMEs were owed money. This figure can go over 90% for larger businesses. Don’t let your business fall into that trap. 

Chasing invoices is time-consuming – UK businesses spend 56.4m hours yearly going after late payments. Diverting your resources to credit control also may not be the best thing right now. The good news is, that the technology is already capable of performing these tasks. Therefore, you might want to look into solutions that will help get your invoices paid on time. 

4. Put an end to Manual Tasks

The current stagflation is not usual. Even though the unemployment rates are rising there are more vacancies available than there are unemployed writes Bloomberg. This can be connected to the “great resignation” and the fact that the younger generations (Millenials and Gen Z) are favouring mental health and well-being over careers that involve long working hours. For businesses it comes at a cost- to recruit a quality workforce is now becoming more expensive or the job should be more rewarding. 

To become lucrative employers businesses have to think about how they can decrease dull and repetitive tasks. Employees being bored is the number one reason (34%) why employees quit according to the Korn Ferry poll of nearly 5,000 professionals.

Manually chasing the invoices is not the most rewarding task to perform, so it is another reason to delegate it to digital tools. Additionally, your employees worked hard to make that sale and they might feel uncomfortable reaching out to their clients with payment reminders. 

Put Your Cash Collection on Auto-pilot

Kolleno is a cloud-based account receivable platform making it easy and affordable to use. Businesses do not need any costly software installations and it is perfectly compatible with Xero or QuickBooks accounting software or any other popular business tools. The best part is that the platform is suitable for any industry or business sector. 

The platform itself is powered by machine learning algorithms which can suggest strategies for faster collections, after connecting to your accounting software via API. The actions centre will tell you everything that has to be done today to speed up cash to your account. Also, suggesting the best tone of voice and templates that only strengthen the customer relationships. 

Kolleno clients are benefiting from an improvement in their cash flow as quickly as three months after subscribing, reducing the overall overdue balance by 40%. 

The stagnation, recession or any other economic uncertainty is harmful to businesses if they are unprepared. Right now, is a great time to see which processes could be improved or even automated. 

*Stagflation – stagnated economy + inflation