AR vs Inflation – Bringing Back Control

In the current inflationary environment, the financial reverberations reach far and wide into the business world. With cash flow concerns having risen rapidly up the agenda, a sharp but balanced approach to AR is essential. In the first of this two-part exploration of the wider reach of AR, Ben Sepehri, Director, AR Finance, Taulia, scrutinises current causes, consequences, and options.

While it is clear to most businesses that inflation is now having a material effect on their finances, it may not be so apparent to all observers just how systemic an issue it is becoming as the consequences permeate all aspects of the business cash flow cycle. Nonetheless, the message that must be understood now is simple, notes Sepehri “given the squeeze on margins, business models are going to have to become more agile to cope with these material changes to the cost base”.

Few businesses are left unimpeded by current circumstances but product-based industries are being particularly challenged, with inflation impacting every key aspect from cost of goods and commodities prices to shipping and inventory costs, says Sepehri. While for these players there are some early green shoots offering hope, with shipping costs having fallen slightly to marginally ease supply chain issues, the upside is offset in other areas, most notably in rising energy costs. “Companies heavily reliant on energy use – manufacturers in particular – are facing unavoidable cost rises just to maintain the same level of production,” he notes. “But in terms of inflationary impact, these costs are beginning to have consequences for businesses right across the board.”

Indeed, there is a second-order impact of inflation on business finance, and that is the rapid raising by central banks around the world of their benchmark interest rates. Inevitably, as these rises are imposed to try to confront inflation, businesses relying on working capital financing vehicles and loans, for example, are going to be paying more for their debt finance.

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