Firms could face a "cash-flow crisis" over the next six to 12 months, a leading business advisor has warned, due to supply chain pressures.

Increased costs to transport goods is squeezing margins as firms try to prevent passing on increases in costs to their customers.

But the result could leave businesses facing shortfalls in working capital.

That's according to Andrew Tate, head of restructuring at accountants and business advisors Kreston Reeves, which has offices in Canterbury, Chatham and Sandwich.

He explains: "The physical impact of challenges in supply chains is being felt by businesses with stark warnings of retail shortages into the run up to Christmas. Yet, for many businesses, the financial impact has yet to be truly felt.

“Margins are being squeezed with increased transportation and consumable costs that often cannot be passed on to customers or consumers. The costs of pallets have, for example, increased by over 400%.

“Lower margins translate into lower profits and a greater need for working capital when businesses need to meet fixed costs – wages, supplier costs and overheads. This comes at a time when many businesses are facing a constrained working capital environment following the Covid-19 pandemic. Government grant and loans have helped shield many businesses from this, but those will need to be repaid over time, compounding a challenging financial picture.

“Businesses need to look ahead the best they can, using forecasting tools to scenario plan. This will help them identify financial pinch-points and any potential future funding requirements. Businesses should open discussions with their lenders and funders now to see them through any tricky periods.

“Lenders have been supportive of businesses throughout the pandemic and will not want to see their customers fail. However, it is likely they will require security on further funding, and this may not be straightforward if security is already given for current borrowing.

“To compound the problem, the government in 2020 gave HMRC a priority status in insolvencies, and banks may choose to a more cautious approach in further lending to businesses.

“By talking to lenders and funders now opens considerably more options for businesses with supply chain challenges. If left until a crisis hits, investors will understandably seek a much higher stake for investing at a time of greater risk and uncertainty.”

Supply chains have been hit hard by the HGV driver crisis which has already been felt by retailers from pubs to supermarkets.

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