Inflation and Business Cash Flow

Guide on inflation and its impact on your business: Key strategies to navigate the challenges.

Business owners across New Zealand are looking for ways to cope with the challenges of inflation. We look at some practical strategies you can implement to help ease the impact of inflation on your business.

How Inflation Affects Your Business

With the consumer price index experiencing a 7.2% increase in the 12 months leading up to December 2022, business owners should be aware of its potential effects.

Some key ways inflation can influence your business include:

Rising Prices: Inflation causes a general increase in the price of goods and services, leading to higher costs for raw materials, wages, and other expenses.

Higher Loan Interest Rates: When inflation goes up, The Reserve Bank of New Zealand may hike interest rates to keep it in check. This can result in higher interest rates on loans and lines of credit, making borrowing more costly for businesses.

Cash Flow Shortfalls: Cash flow issues are one of the main reasons businesses fold. Inflation can exacerbate this problem so business owners must protect their profit margins and keep a close eye on their cash flow.

Tips to Soften the Blow of Inflation on Your Business

Putting some or all of these strategies into action can help shield your business from inflation’s impact, keep your cash flow in good shape, and boost your chances of long-term success.

Be smart about raising prices

Raising your prices can help counter the increased costs of goods and services due to inflation, but it’s essential to do so thoughtfully.

  • Consider offering value-added services or products to justify the price hike.
  • Communicate the reasons for the price increase to your customers.

Customers are eager to back local businesses, provided the value proposition is transparent and the company fosters a connection with them.

Discuss payment terms with suppliers

Getting better supplier payment terms can improve your cash flow and cut costs. Here are a few ways to negotiate payment terms with suppliers:

  • Request longer payment terms to enhance cash flow.
  • Chase discounts for early payment to trim costs.
  • Negotiate bulk-purchasing discounts to shrink costs.

Keep your inventory in check

Proper inventory management can help lessen the impact of inflation on your business. Here are a few tips for staying on top of your inventory:

  • Carry out regular inventory audits to spot slow-moving or excess stock.
  • Steer clear of overstocking to cut carrying costs.
  • Adopt just-in-time (JIT) inventory management to reduce inventory levels and boost cash flow. Remember to be mindful of supply chain issues when using the JIT method — you don’t want to be caught without enough inventory!

Mastering inventory management can create a more efficient and responsive supply chain that adapts to market changes, helping your business thrive even during inflation.


Whether inflation directly affects your business loan hinges on two factors: having a fixed interest rate or a floating rate loan. If you’ve got a fixed-interest rate business loan, rate fluctuations shouldn’t impact your loan.

Here are some benefits of opting for a fixed-rate business loan:

  • Certainty and predictability for your business’s budgeting and financial planning.
  • Protection from interest rate increases caused by inflation.
  • Lower risk of interest rate fluctuations interfering with your cash flow.

Considering a fixed-rate business loan? Weigh the pros and cons carefully. For example, fixed-rate loans often have a slightly higher initial interest rate than variable-rate loans. You can compare business loans from a range of trusted lenders here.

Explore invoice financing options

Invoice financing can help during inflationary periods by boosting your cash flow and providing quick access to funds. Here are some advantages of using invoice financing:

  • Stable cash flow management due to predictable payment terms, which allows for better financial planning.
  • Immediate access to cash, enabling you to cover expenses or seize growth opportunities without having to wait for payments from clients.

Stay on top of cash flow statements

Regularly checking your business’s cash flow statements can help you spot potential cash flow hiccups and let you take action before things go south. Here are a few tips for reviewing your cash flow statements:

  • Review cash flow statements monthly or quarterly to spot trends and potential issues.
  • Compare actual cash flow against projected cash flow to pinpoint discrepancies.
  • Use cash flow forecasting tools to predict future cash flow and spot potential shortfalls.

As you continue to navigate the challenges of inflation, stay proactive and adaptive to keep your business thriving in the ever-changing economic landscape.

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