Inflation is on the rise in the UK. It currently stands at 1.8 per cent, the highest since June 2014.

Fuel prices have been increasing according to official figures from the Office of National Statistics (ONS). Prices rose 3.4 per cent between December 2016 and January 2017. There has been a knock-on effect on prices of transport services.

Prices are also being pushed up by unfavourable exchange rates in the wake of Brexit. Businesses could now be forced to pass on these rising costs to customers when income growth is likely to slow.

There is continued pressure on the supply chain with input cost and output price inflation reaching new highs according to ONS figures. Import prices are increasing 20 per cent year-on-year according to some observers.

To counteract the negative effects of inflation, businesses may need to employ supply chain finance.

Supply chain finance (SCF) is a set of solutions that are designed to improve cash flow by allowing businesses to lengthen their payment terms to their suppliers while providing the option for their large and SME suppliers to get paid early. This results in a win-win situation for the buyer and supplier. The buyer optimises working capital and the supplier generates additional operating cash flow, thus minimising risk across the supply chain.

SCF solutions differ from traditional supply chain programs to enhance working capital, such as factoring and payment discounts, in two ways:

• SCF connects financial transactions to value as it moves through the supply chain.
• SCF encourages collaboration between the buyer and seller, rather than the competition that often pits buyer against seller and vice versa.

Often a buyer will try and delay payment but the seller will seek to be paid as soon as possible. SCF works especially well when the buyer has a better credit rating than the seller and can therefore access capital at a lower cost. The buyer can use this advantage to negotiate better terms from the seller such as an extension of payment terms, which enables the buyer to conserve cash or use it for other purposes. The seller benefits by accessing cheaper capital, while having the option to sell its receivables to receive immediate payment.

A buyer using SCF can mitigate the impact of term extension on their suppliers and take cost out of the supply chain. It improves the supplier’s cash flow and provides the option to accelerate the collection of their trade receivables.