Increased supplier costs for SMEs as price of raw materials rack up

By Michelle Perrett

Published: 02 November, 2021

Supply chain issues and increasing costs have impacted small and medium enterprises (SMEs) across the country with four out of five (79%) revealing they have faced increased prices from suppliers over the past six months.

Research of 1,000 SME owners by Fintech business lender MarketFinance found that a quarter of those surveyed reported supplier prices have almost doubled during this period.

An increase in the cost of raw materials was the top ranked rationale for price increases by suppliers, most keenly felt by businesses in the north west of England (85%). This was followed by staff shortages, the ongoing impact of the pandemic slowdown and supply chain disruptions owing to a shortage of truck drivers.

Of the 79% that have faced the price increase 32% said that they had been able to absorb the increased costs without passing them on to customers, suggesting that these businesses have the necessary cash reserves to handle the impact.

However, 26% admitted that they are passing on the full costs while only a fifth (21%) are passing a portion of the increased costs onto customers, the research revealed. Businesses in the south west of England and Northern Ireland were found to be the least likely to absorb the costs while businesses in the north west and Yorkshire were the most likely to do so.

Looking ahead to the festive season, SMEs felt they would be able to manage the situation, but two-fifths reported they could increase their prices by as much as 10% if pressures on the business got too much.

Longer term, three quarters (73%) are already preparing for the current higher prices to be the norm until at least the end of 2022. A third (34%) have taken out loans or are using other finance facilities to manage the increased cost of doing business.

“The current economic environment with rising costs is presenting some headwinds and headaches for SME owners but they are proving to be as resilient as ever. The vast majority have been thinking ahead and accounted for the longer term scenario, which will hold them in good stead to do business,” said Anil Stocker, CEO at MarketFinance.

“It’s great to see that SME owners are taking the long view and preserving their customer relationships and managing suppliers by having a finance facility in place to deal with the overhead for now.”

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