UK retailers are feeling the bite as the cost of living crisis continues to impact consumers’ festive spending habits. David Brown, Founder of Social Enterprise, Hi, explains how financing payroll can boost business confidence this Christmas.
UK retailers are preparing for a difficult Christmas trading period as consumers tighten their belts in the run-up to the festive period. They must contend with lower consumer spending as well as squeezed margins from rising inflation and increasing utility bills.
Some retailers are using overdrafts, supply chain finance (SCF) and internal cash generation to protect their cashflow. However, many are ignoring their biggest expense – payroll.
As this festive period threatens to be less fruitful than previous years, retailers need to get creative and look how additional financial levers could help them preserve cashflow, avoid expensive debt and, get a festive boost during what’s shaping up to be a difficult Christmas period.
A costly Christmas
Christmas is typically the most profitable time of the year for retailers, but the cost-of-living crisis has led customers to tighten their purse strings.
The Consumer Prices Index (CPI), which measures the change in average prices paid by consumers based on a representative basket of goods and services, rose by 10.1% in the past year, highlighting that products are becoming more expensive. This was partly driven by inflation which jumped to 11.1 per cent in November from 10.1 per cent in September.
While recent data from Barclaycard has shown a 3.9 per cent in consumer spending year on year in November, this is mostly due to the increasing cost of essentials. A closer look at the data reveals that cold weather essentials proved popular in light of increased heating costs. Not quite the Christmas boom retailers are hoping for.
The drop in meaningful consumer spending coupled with the economic uncertainty of the cost-of-living crisis has left retailers in a precarious position. As businesses continue to feel the squeeze, many are looking for new ways to improve their cashflow.
Banks tightening lending criteria
Recent research highlighted that three-fifths of SMEs said they currently need funding to ease day-to-day cashflow issues and retailers are no different. In times of need, many businesses turn to the banks.
However, businesses are increasingly struggling to get loans. Over half of the 500 business leaders surveyed said they think banks are too slow in assessing business loan applications and just under half felt that they are reluctant to lend to smaller business.
The inflexible attitude of the traditional banking system is causing huge issues for firms which need access to finance to survive and grow.
Cash is the lifeblood of businesses and banks are failing to provide the necessary support. It’s time for businesses to look elsewhere.
Boosting business confidence
One way UK retailers can improve their cashflow without incurring loans is by exploring fintech alternatives, such as financing payroll.
Businesses can finance payroll for months and release cash back into the company, boosting cashflow by funding what is often their highest expense. This money is then made freely available to the employee as they earn it, smoothing their cashflow and eradicating the feast or famine cycle of monthly play.
A recent study found that businesses have experienced a drop in productivity due to employees feeling the burden of financial stress. A flexible payment policy can improve companies’ productivity levels by enhancing the financial flexibility of employees. They can also use flexible pay during the festive period instead of incurring their own debt or using buy now pay later schemes.
During a challenging festive period, it’s vital that retailers protect cashflow. With the banks unwillingness to help, they need to explore alternative offerings such as financing payroll to unlock cashflow during this critical time.