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Protect your business from inflation through crowdfactoring

Blog
8 November 2022
Protect your business from inflation through crowdfactoring

In July, inflation reached a record 10.8%. In other words, the average price of the products and services we consume was more than 10 points higher than in the same month last year. Although this figure has fallen in the following months, the interanual inflation recorded in October was still extraordinarily high at 7.3%.

Given this scenario, many entrepreneurs and professionals are looking for ways to protect their businesses from inflation.

Well, crowdfactoring platforms such as Inversa Invoice Market can be tools at companies' service to fight against the devaluation of the money they earn and anticipate the rise in prices of some products.

Below, we will discuss the role that alternative financing can play in helping companies to deal with the pernicious effects of inflation and to overcome macroeconomic challenges.

Inflation causes money to devalue

The generalized rise in prices has a direct impact on companies and families. To give an everyday example: a yogurt costs almost 20% more today than last year. When we go to the supermarket, we can feel the rise in prices and how it affects our wallets. What we used to buy with 50 euros now costs significantly more.

The same thing is happening to businesses. The money they used to spend on suppliers to obtain the supplies of goods and services they need to carry out their economic activity is no longer sufficient to make those purchases.

Money is devalued, and families and businesses lose purchasing power. For example, with an investment of 1,000 euros, you can no longer buy the same products as last year. And if inflation continues to grow in some goods or services, with that money, you will be able to buy less of them next month.

Crowdfactoring allows you to have the money upfront

Crowdfactoring can help businesses combat the loss of purchasing power and the devaluation of the money they earn. How? By anticipating the entry of that money into the company's coffers.

Through this form of alternative financing, a business finances an invoice issued to a customer but has not yet been collected. In this way, it can obtain this income more quickly and thus have liquidity.

In the current situation, this means of financing brings an extra advantage: with the amount of the invoice, more goods and services can be purchased today than if the money were paid in two months when the customer makes the payment.

In other words, crowdfactoring helps to protect businesses from inflation. Since receiving the income in advance, it has not been devalued, and the loss of purchasing power of the companies is slowed down.

Let's look at an example. In September, the price of sugar rose by 1.9% compared to August. If a company that produces pastries for sale in supermarkets, bars and restaurants could have bought more kilos of sugar with the same amount of money in July than in August, crowdfactoring offers it the possibility to buy more kilos of sugar with the same amount of money in July than in August. Crowdfactoring offers it the possibility of collecting in advance the invoices it issues to supermarkets and restaurants for the croissants it sells them.

Protect your business from inflation through crowdfactoring

Manage purchases and stock to anticipate the effects of inflation

The above example allows us to observe that, by having their income available in advance, companies can allocate it earlier to purchase goods and services they need to operate, produce and market their products.

In this way, they can anticipate inflation. A central issue if we consider that there are raw materials that increase in price almost every week. Let's continue using the same example.

Sugar rose by almost 2% in september, but it has risen by 10.6% over the year. The rise in other basic raw materials for our bakery is even greater. In the last 12 months, whole milk has risen by 25.3%, eggs by 23.6%, butter by 33% and flour and other cereals by an exorbitant 39.4%.
With these figures in front of it, which directly affect its cost structure and thus profitability, the company can make strategic decisions on purchasing raw materials and their storage.

Crowdfactoring marketplaces such as Inversa allow you to finance your invoices, obtain revenue more quickly and thus also bring forward the process of purchasing raw materials that may become more expensive in the coming months.

Some products cannot be stored or have a very tight expiration date, but other goods, such as sugar or flour, can be purchased months in advance, thus protecting businesses from inflation and its effects.

Crowdfactoring provides the necessary liquidity to do so without resorting to debt and without any imbalance in the economic accounts.

Financial resources to protect your business from inflation, control costs and maximize profits

Planning income and expenses is always crucial for any company. But planning is even more important in a macroeconomic context as uncertain as the one we are experiencing due to the scarcity of raw materials, the war in Ukraine and the rise in energy prices. Purchasing goods at the right time can reduce the costs that a company has to bear and, therefore, increase its profits.

Beyond planning, companies must have the financial resources to carry it out. For example, it is useless for a business to know how many kilos of flour it will need throughout the winter if it does not have the money to buy them as soon as possible and avoid having to invest more money in acquiring them in two months.

Hence, alternative financing is set to become a way not only to obtain liquidity in the short term and meet macroeconomic challenges but also to avoid the devaluation of companies' money and reduce the impact of inflation on the cost of the raw materials they need to carry out their activities.

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Inversa Team
Inversa Team

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