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How can your business navigate the rise in interest rates?.

The recent hike in interest rates may be ringing alarm bells for your business and how it can navigate the changes.

You must have a plan in place to cope with the increase to 4.5 per cent as well as any future increases.

How could this impact your business?

The interest rates for late payments set by HM Revenue & Customs (HMRC) are directly linked to the Bank of England’s interest rate changes.

It’s been declared that these rates, which are applicable for late payments and repayments, will go up.

These alterations will come into play on 22 May 2023 for quarterly instalment payments and 31 May 2023 for non-quarterly instalment payments.

At present, the late payment interest rate stands at 6.75 per cent, with the repayment interest rate at 3.25 per cent.

The exact figures for the increased rates haven’t been released yet, so keep an eye on the GOV.UK website for updates.

How can you plan ahead?

Analyse debt levels

According to a recent study by Bibby Financial Services, average bad debt levels for SMEs rose by 61 per cent in February 2023 when compared to the same time in the year prior.

With the interest rate increase, repayment levels are also bound to rise. So, it is crucial that you use all available tools to manage this risk and ensure your business’s financial stability.

If possible, consider shifting your debts to a fixed-rate loan to safeguard your business from further interest rate increases.

Having a comprehensive understanding of your existing debt can help you strategise for future expenses and borrowing.

Manage your cash flow

Regularly examining your cash flow can help you understand how the rising interest rates might affect your business.

Keeping a close eye on your business’s cash flow can help to forecast and make necessary adjustments as needed.

As part of this, you must review your overheads to identify areas for optimisation.

This could include renegotiating contracts with suppliers or even adopting more energy-efficient lighting in your office. Every small saving can contribute to your business’s long-term financial health.

Adjusting prices

The thought of increasing your product or service prices can feel risky, potentially impacting your customer base.

However, customers are likely aware of the rising interest rates and may understand subsequent price increases. A review may also reveal that some of your prices are below the market rate, making an increase less surprising to your customers.

Maintaining good financial practices will not only help you weather these changes but will also promote sustained business growth.

Get in touch for more advice about interest rates and their impact on your business.

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