The raw material prices have experienced exponential growth, causing an increase in inflation very detrimental to small and medium-sized businesses by increasing both their fixed and variable expenses.
Faced with this reality, it is convenient to resort to new forms of financing for companies. When the economic situation gets tough, alternative financing solutions can offer superior results than traditional ones.
1. How the prices of raw materials affect the accounting of the company
The increase in the cost of raw materials, including energy, is one of the great concerns of businessmen this year.
The Business Climate Study of the Spanish Chamber of Commerce for 2022 revealed two irrefutable facts:
– 8 out of 10 Spanish companies consider that the increase in prices of raw materials is the main ballast for its development.
– 42,6% of the companies surveyed complained about the scarcity of raw materials and the supply problems.
Therefore, high prices for raw materials they generate supply problems and great uncertainty for businessmen. The most affected sector is the industrial sector, although it affects any type of business.
These consequences of inflation They also extend to SMEs and the self-employed, since all professional activities consume energy, including services. The services sector is always supported by physical elements, such as food in restaurants, water, shampoos in hairdressers, fuel in taxis, etc.
The retail price depends on the production costs and the profit margin applied. Between the consequences of inflation, figure the loss of purchasing power. However, when the raw material prices rise, it is impossible to reduce this item.
The operating margin is reduced and the demand for products and/or services is drastically contracted as the purchasing power of consumers decreases. In this context, the financing for companies becomes an essential ally.
2. Less availability of raw materials
Let us consider another of the negative consequences of inflation:
Shortages of goods and supply problems
Inflation not only raises prices, but also reduces the availability of products, which in turn increases their cost.
To deal with this additional difficulty, it is often necessary anticipate purchases or increase their volume in order to maintain margins. However, all of this requires a business financing competitive and appropriate.
3. Tips and financing recommendations when production costs rise
We want to offer you useful information to help you overcome these current complications related to inflation in supplies.
Here are four suggestions on financing for companies especially valuable:
– Avoid depending on a single financial entity, especially if it is a bank. We recommend you search different formulas and options to find the best possible conditions.
– Take advantage of your assets to obtain the business financing you need. In this sense, the discount of promissory notes and Factoring as a Financial Tool for Managing Seasonal Fluctuations in Trucking allow you to convert your credit sales into cash sales. In this way, you can purchase all the raw materials you need at the right time, without having to wait for commercial credits to expire.
- In the same way, el confirming and the assignment of payments to suppliers They offer you time to make those payments profitable. Thanks to these financing modalities, your collaborators get paid before without you having to make the disbursement, since the financier advances the payment in exchange for a commission, giving you the opportunity to dedicate that money to the supply of new materials and/or energy for future orders.
– Find financing for become a generator of these necessary items. For example, if you invest in energy self-consumption, in the medium term you will achieve great savings. You just have to locate an interesting and profitable financial source to address this strategy. On most occasions, the alternative financing offers you the best conditions.
The rise of the raw material prices It is a setback, but if you know how to manage it well, it can become an opportunity.
Remember that this situation also affects your competitors, so if you get the financing for companies right, you can come out stronger.
Do you want to be well advised?
Contact us at WorkCapital and we will help you lead the way.
