The last few years haven’t been nice to businesses. Lockdowns, supply chain disruptions, and labor shortages put companies in precarious positions. Rising inflation has left many stretched thin, particularly small to mid-sized enterprises.
Take the cost of raw materials, for example. When prices go up, it impacts every other business expense down the line—from production and packaging to distribution and operations. A slight hike can even be felt in the cost of wages, utilities, and leases. It’s simply more expensive to run a business.
Complicating matters further is supply and demand fluctuation. Although the demand for certain goods drives up prices—as seen throughout the food industry—the added expense of those goods inevitably takes a toll on nonessential products and services. It reduces the demand, thereby lowering sales for many businesses.
As sales decline, inflation can be further felt within a company’s cash flow. The money just isn’t coming in like it used to, making it difficult to keep operations running smoothly. With time, the business might begin to bring in less money per dollar of sales, shrinking profit margins and bringing the company’s financial health into question.
The Reactionary Approach to Rising Inflation
When inflation brings a business’s financial health into question, leadership often takes a reactionary approach. And for many, the answer is found in price hikes—a logical decision, but one that comes with a fair share of risks. If the team fails to utilize the proper resilience model, the business could be outpricing its customer base.
If not price hikes, attention quickly turns to reprioritizing product sales. The most profitable products or services take center stage, while those deemed less fruitful are relegated to the wings. Much like price hikes, this approach to minimizing the impacts of inflation also comes with risks: Namely, alienating part of the customer base (if not putting a strain on customer relations), as this approach can set the purchase prices above purchase dates.
Although it can be challenging to resist the urge to enact either strategy, it rarely does businesses any good to react to circumstances. Instead, pause and start monitoring changes in relative prices. Not all prices increase at the same rates, especially when economic conditions shift almost daily.
That’s where an automated accounts payable (AP) solution can come in handy. You gain greater visibility into the finances of a company. Understanding your company’s financial standing allows you and the finance team to make more informed decisions. You get a better view of spend, business processes, operational functions, etc.
It also frees your finance team from mundane, repetitive, and error-ridden tasks, letting them focus on more value-adding initiatives. AP automation allows your team to become more strategic thinkers within the organization. They can take a more holistic approach to higher inflation rates and offer innovative ways to protect the business in the short and long term.
The Benefits of AP Automation Solutions
AP automation doesn’t just provide greater visibility—though visibility can significantly benefit operations, as it allows for more in-depth invoice and payment reporting throughout the company. AP automation software also allows your business to:
- Streamline Processes. No more manual processing of invoices, outbound payments, etc. AP software automates many processes, helping streamline the finance function.
- Improve Accuracy. The finance function isn’t immune to human error. Even the most seasoned finance professionals can make mistakes. With AP automation software, data inconsistencies become a thing of the past.
- Reduce Costs. Besides eliminating the costs associated with paper-based processes, AP workflow software can significantly improve data quality. Little time is spent going back and forth among the team, minimizing the risk of late payments. Better yet, you can take advantage of early payment discounts offered by many companies.
- Boost Performance. On the surface, AP software does little more than automate payment processing. But with the right tech stack, you can set and track key performance indicators (known as KPIs) that can help sustain your business and allow for growth while facing rising inflation rates.
How inflation impacts businesses isn’t always cut and dry. The struggles of one company won’t be the same as those of another, even within the same industry. AP automation solutions offer the visibility you need to proactively approach the current circumstances and make decisions based on facts, not assumptions.
