What Does The Cost-Of-Living Crisis Mean For Businesses?

There’s no way of getting around it – the cost-of-living crisis is now in full swing. What was once a dreaded fear is now a reality for many, with rising costs leaving some people choosing between food and heat this winter. But while the news is focusing on the impact of the crisis on individuals, we wanted to take a look at how the cost-of-living crisis is affecting businesses, and what the future ripple effects might be.

What Caused The Cost-Of-Living-Crisis?

Like most financial crises, there is no one reason for the cost-of-living crisis. Instead, a few things have happened at the same time that have resulted in costs skyrocketing, but wages staying the same or even falling. Add to that the recent dip in the value of the pound, and you have a melting pot of financial instability.

However, the experts claim there are 3 things that have directly contributed to the energy crisis:

Inflation: This is one of the bigger causes of the cost-of-living crisis, and something there are still political battles being fought over. In June inflation in the UK rose to 9.4% – the highest it’s been in 40 years. That means something that cost £1 last year will cost £1.09 this year. If it cost £10 last year, then it’s £10.94 this year. If that wasn’t bad enough, inflation isn’t finished rising yet, with experts predicting it will hit at least 13% by the end of the year.

Supply Issues: Brexit and the pandemic have caused a lot of issues with shipping, free movement and the supply of goods, which has a knock-on effect for businesses across the country. With shipping capacity down and shipping costs up, it’s harder for businesses to get hold of the goods they need. And since suppliers know they are desperate and their product is in demand, the price goes up. This has not been helped by the recent war in Ukraine, which has put more pressure on various supply lines

The Energy Crisis The demand for oil and gas has increased, and as a result, prices have skyrocketed. This means increasing prices for energy companies, which they are passing on to their customers. This may not be a permanent issue, but for now, it’s certainly contributing to the problem.

What Does It Mean For UK Businesses?

The current difficulties might be named the cost-of-living crisis, but that doesn’t mean that businesses aren’t being affected by it too. The very fact that customers are having to make difficult decisions to cut or limit their spending has an immediate impact on businesses, whose revenues are dipping rapidly. On top of that, there are other issues the crisis has uncovered, including:

Increased Overheads: Energy prices haven’t just gone up for residential properties – they’ve increased for businesses too. And since they often have to heat larger areas, this increase can be substantial. A good example is celebrity chef and restauranteur Tom Kerridge, who revealed that the energy bill at just one of his restaurants has gone from £60,000 to £420,000 – a 600% increase in operating costs that is proving hard to bear for many.

Vanishing Customers: As customers are becoming more and more aware of their spending, businesses are faced with more haggling and cost-cutting behaviour than ever before. Loyal customers are downgrading services to the bare minimum they can sustain, some are switching to cheaper alternatives, and others are simply cutting off services they can’t afford any longer. This means the consumer pool is getting smaller, and more businesses are having to fight for a dwindling number of customers.

More Overdue Invoices: As cash gets tighter, so does cashflow, and one of the bigger impacts we’ve seen recently is the massive increase in overdue invoices and defaulted payments. Customers, whether individuals or other businesses are keeping a close eye on the purse strings, only making payments when they can afford to and sometimes delaying supplier payment to a later date. This means businesses are faced with a mounting pile of unpaid invoices, causing concern with their own cash flow.

Given how much strain the country is under right now, many businesses aren’t sure how to go about chasing their customers for payment, even if invoices become overdue. At Debtcol we can help you develop a debt recovery strategy that is sensitive to the challenges customers are facing while still being effective, ensuring you are always paid what you’re owed. If you’d like to know more, or just want to discuss options with us, just get in touch with one of the team today.