Businesses continue to face staffing and resourcing challenges amid a backdrop of high inflation and cost of living pressures, coupled with fluctuating consumer confidence and spending.
Octet supply chain finance manager, Joe Donnachie explains how rising interest rates will affect Australian retailers, how they can create a savings buffer and build better relationships with suppliers.
In relation to interest rates, Donnachie believes there are two perspectives which impact retailers.
“In a higher interest rate environment, consumers are less likely to spend, as their home loan repayments become more expensive, and they have less disposable income at the end of the day,” he told Retailbiz in a recent interview.
“Secondly, rising interest rates mean that any outstanding loans will attract higher interest repayments for retailers. The opportunity to secure new working capital facilities with major lenders also becomes challenging. Due to the nature of secured lending, many retailers and small business owners are unable to borrow as much against their personal property in an economy where property values may be falling.”
Donnachie’s advice for retailers is to implement better forecasting practices across their entire business, with a view to creating an effective ‘cash flow runway’.
“Retailers must viably reduce their non-essential business expenses and review their business’ entire working capital framework. For instance, can the business shorten its cash flow conversion cycle and extend supplier payment terms either directly or via a procurement or Trade Finance facility?” he said.
“As a business leader, it is also worth reviewing existing inventory management system and considering strategic price increases based on brand or category positioning.”
Another piece of advice is taking the time to build a longstanding, mutual partnership with suppliers – instead of one business holding the balance of power, all parties can reap the rewards.
“Working with suppliers that align with your values is important. Similarly, it helps to do your homework and understand any cultural differences that may affect your business relationship,” Donnachie said.
“Consistent communication practices are fundamental to creating strong relationships and reducing delays. Clear communication helps to build rapport, trust and goodwill with your suppliers—and avoid any misunderstandings.
“Exploring different automation options and digital platforms is often a valuable investment in this space. Good processes facilitate on-time delivery, prompt payments and high-quality standards. They also ensure that your suppliers are clear on deadlines and expectations. For instance, early payment discounts can be used as a positive negotiating tool and create added cash flow benefits.”