SMEs considering cost reductions as raw material prices rise

IN: Business news

It will take as many as 300,000 new small and medium-sized enterprises (SMEs) to restore the UK economy to its pre-recession high, a new report has found.

undefinedA number of small and medium-sized enterprises are considering cutting down their expenses in an effort to offset a hike in the cost of raw materials.

According to new research from NIG, 28 per cent of small firms are thinking about cutting costs to relieve the pressure caused by the increase in raw material prices.

That is the equivalent of 480,000 small and medium-sized businesses, with a higher proportion of large firms (46 per cent) also considering the strategy.

The research also showed that 16 per cent of SMEs will potentially look to alter their business processes or products to overcome the issue of raw material costs. 

Manufacturers appear to be particularly vulnerable to the rise in raw material prices, with 43 per cent considering cost-cutting measures, compared to just 25 per cent of retailers. 

Managing director at NIG Jon Greenwood said: "UK businesses have worked extremely hard during the past five years, with many focusing on primary challenges such as maintaining growth and keeping customers happy.

"However, raw material increases have begun to impact many firms."

For UK SMEs, there are a range of options for offsetting this crunch, such as improving cash flow so that funds remain on hand to keep stock in full supply.

Invoice discounting can improve your organisation's cash flow by helping to reduce the effects of unpaid invoices.

Aldermore will pay up to 85 per cent of the value of your company's invoices immediately, although it will be down to you to ensure the client pays up.

If you would rather the bank chased clients for money owed, then factoring is a similar solution for accessing cash that was unpaid by customers.

Rest assured that this tactic can go undetected by customers if you so choose, enabling you to free up cash that can be used to pay for the raw materials your business needs. 

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