Recessions can be terminal for many businesses, but logistics businesses are particularly vulnerable and need to be proactive if they are to survive a recession.
Customers naturally make cutbacks and look to save money wherever they can when times are financially tough – and this has implications for your logistics company’s income. Following on from the challenges of 2022, 2023 is set to be even more difficult with a looming recession coupled with a cost-of-living crisis and the ongoing effects of the COVID pandemic.
The good news amongst all this economic gloom is that there are precautionary steps you can take to shield your logistics business from the impact of a recession.
Challenges Your Logistics Business Faces During a Recession
Working capital
Access to business assets or working capital is vital for all businesses at all times and especially during a recession. Cash flow stalls when there are outstanding payments or a drop in sales, which makes fulfilling business fundamentals like paying employees and suppliers a problem – and creates the real risk of getting into debt.
Factors Outside of Your Control
In the logistics sector, there are many factors outside of your control, from changing container costs and shipping prices to strikes and weather difficulties. All of these issues make managing your working capital hard as it can be tricky to secure new business or to meet deadlines, impacting on your bottom line.
Business Structure
Keeping up with the speed of digital transformation is challenging for logistics businesses. Although the last decade has seen companies in this sector adopt digital processes and infrastructure, payments systems lag behind. This makes it difficult to offer trade credit online with many firms having to offer payment terms at the expense of their own company, just to win business. It’s all too easy for these terms to not be met, which impacts the business, working capital and company plans.
How Can Logistics Businesses Protect Against a Recession?
The key to boosting cash flow and surviving during a recession is working capital – and there are measures logistics firms should put in place to protect them from the impact of an economic downturn.
Create a Better Payments System
By installing a transparent payments system, logistics companies can monitor and track payments, leading to faster payments and the ability to chase overdue payments more efficiently. Customers benefit too, as they understand the payment process and what’s required of them.
Offer Payment Incentives
By offering payment incentives to customers, you encourage quicker and more reliable payments. Something like a 5% discount if paid within 10 days of receiving the invoice gives the customer a reason to pay swiftly. Similarly, you could also have a penalty system of 5% extra if the payment date is missed, to act as a deterrent against late payments.
Provide The Right Payments Options
Using a trade credit provider like Hokodo to provide customers with a digital payments solution makes it easier for your business and customers to manage cash flow. You benefit from outsourcing the payments risks as well as saving time on financial tasks, and your customers benefit from an effective and efficient payment solution.
At times of economic uncertainty, there are many challenges that all, particularly logistics businesses, face. However, by being proactive and taking steps to safeguard your working capital and making your company work harder and smarter as a result, you can shield your business from the impact of a recession and continue to survive.
Louis Carbonnier, co-CEO and co-founder at Hokodo
A rapidly growing fintech, Hokodo provides Buy Now, Pay Later solutions to the B2B market, enabling business customers to benefit from instant, frictionless, interest-free payment terms. A leader in the field in the UK, Hokodo is currently expanding into continental Europe, and working on the creation of new products devised to serve the B2B market.
