Supplier price rises squeezing your cash? The steps to take before you borrow

It rarely arrives as one big shock. The flour goes up a little. Then freight. Then packaging. Then the supplier who’d held prices for two years sends a polite letter. Each rise on its own seems manageable, so you absorb it. Six months later, turnover looks fine but the bank balance keeps drifting lower, and the BAS is suddenly hard to cover.

That’s a cost squeeze, and it’s one of the most common reasons owners find themselves thinking about finance — often before they’ve realised that’s what’s happening.

Why do cost rises hit cash flow so hard?

Because most small businesses can’t pass them on straight away. The Reserve Bank’s October 2025 Bulletin on small business conditions reported that businesses say weak demand has limited their ability to pass on cost increases, with many responding by cutting costs and improving productivity instead.

So the rise comes out of margin. And margin is where the cash for everything else — tax, wages, loan repayments, a rainy-day buffer — comes from. A few percentage points of margin, lost across every sale for months, adds up to real money.

Step 1: measure the squeeze in dollars

Before deciding anything, put a number on it. Take your five or six biggest input costs and compare what you pay now with the same period a year ago.

Input	Monthly spend a year ago	Monthly spend now	Difference
Main ingredient or material
Packaging
Freight
Energy
Rent or outgoings
Total

Fill in your own figures — your accounting software or supplier statements will have them.

Then check your gross margin over the same period. If turnover is steady but margin has narrowed, you’ve found the squeeze. business.gov.au’s free cash flow statement template is useful here: it shows money in and out month by month, and makes the trend easy to see.

Step 2: review your own prices

This is the step most owners put off longest. Some practical ways to approach it:

• Find the thinnest margins. Which products or services have been hit hardest? Those are the first candidates.
• Check the market. What are comparable businesses charging now? You may be further behind than you think.
• Rise in small, explained steps. A modest increase on specific lines, with a brief reason, tends to land better than a big across-the-board jump.
• Look at minimum orders, call-out fees or delivery charges. Sometimes the fix is in the structure, not the headline price.

Step 3: talk to your suppliers

Suppliers are under pressure too, but that doesn’t mean nothing can move. Things worth asking:

• Longer payment terms, or staged payments on large orders.
• Bulk pricing in return for a larger or longer commitment.
• Price holds for a set period.
• Alternative products at a lower cost that would work just as well.

business.gov.au’s cash flow advice includes shopping around for better pricing and negotiating improved terms with existing suppliers. It also lists trade credit — supplier-provided time to pay — among the common ways businesses fund themselves. A supplier who gives you 60 days instead of 30 is, in effect, lending you money at no cost.

If a bulk order at a locked-in price is on the table, that’s a situation where finance can genuinely help. Our stock purchase call prep explains how to show a specialist the numbers. When you’re ready, request your call-back here.

Step 4: free up cash already in the business

Before borrowing, look for cash that’s stuck:

• Chase overdue invoices. business.gov.au suggests chasing overdue payments promptly and sending invoices earlier. If a big customer is the problem, our guide to a big customer paying late has a week-by-week plan.
• Clear slow stock. Stock that isn’t moving is cash on a shelf. Discounting it to free up money can make more sense than borrowing to buy more.
• Review spending. Subscriptions, services, insurance and bank fees are worth a fresh look.
• Align rosters with busy periods. business.gov.au lists this among its cash flow tips.

Step 5: decide whether finance fits

Finance is a good tool for some parts of a cost squeeze and a poor one for others.

Situation	Does finance fit?
Buying ahead at a locked-in price before a known rise	Often, yes — the saving can outweigh the cost
Bridging a few months while new prices take effect	Can do, if there’s a clear end date
Funding equipment that cuts an ongoing cost (energy, labour, waste)	Often, if the saving is real and measurable
Covering a margin that’s permanently too thin	No — the gap keeps coming back and the debt grows

The last row matters most. If the business can’t make enough margin at current prices and costs, borrowing just moves the problem forward and adds a repayment to it. The fix there is pricing, costs or both.

For the situations where finance does fit, unsecured and cash-flow options for trading businesses typically run from $5,000 to $500,000, sized on turnover and bank statements. Property-secured loans from $20,000 to $5,000,000 suit larger or longer needs. Either way, ask for the total cost in dollars — our page on the total cost of a business loan explains why.

What should I have ready for a call about it?

If you decide to talk it through, bring:

• your cost comparison table from Step 1
• your recent margin trend
• the pricing changes you’ve made or plan to make
• any supplier offer — bulk pricing, a price hold, new terms
• recent business bank statements
• a simple forecast of the next few months

The call-prep tool turns this into a checklist for your amount and state. Choose “Cash flow gap” or “Stock or inventory”, depending on what you’re funding.

Where can I get free help?

If costs are pushing the business towards debt it can’t manage, business.gov.au lists the free Small Business Debt Helpline, and the ATO can help if tax payments are being affected. Your accountant can help with pricing and margin analysis, too.

A worked example

Here’s an illustrative example of how the steps fit together, for a small bakery (made-up figures, not a real business):

• Step 1. Flour, butter, packaging and energy together cost about $3,200 a month more than a year ago. Turnover is flat. Margin has narrowed noticeably.
• Step 2. The owner reviews prices and lifts the three best-selling lines slightly, with a short note at the counter explaining rising ingredient costs. Specialty cakes get a larger increase, because they were underpriced.
• Step 3. The flour supplier offers a better price for a six-month commitment and a bulk delivery. The owner also switches packaging supplier.
• Step 4. A catering customer who’d been paying at 60 days agrees to 30. Slow-moving jarred products are discounted and cleared.
• Step 5. The bulk flour buy needs about $14,000 upfront, repaid from the savings over the six months. That’s a short, clear use for finance.

The result: most of the squeeze is solved by pricing and supplier changes, and finance funds only the part that creates a saving. That’s usually the healthiest balance.

How often should I check for a squeeze?

Quarterly is a sensible rhythm for most small businesses, and it lines up neatly with the BAS. When you lodge each quarter, spend twenty minutes comparing your main input costs and gross margin with the same quarter last year. If the gap is widening, you’ll see it early enough to adjust prices or renegotiate with suppliers before the bank balance forces the issue. Owners who check regularly rarely end up borrowing in a hurry.

Ready to talk it through?

A cost squeeze is easier to handle when you can see it in dollars and have one clear conversation about the options, including the ones that don’t involve borrowing. With Loan Hotline, you won’t face a credit check just for asking, your details go to a single team rather than a stream of lenders, and the specialist reads your situation first.

Please answer the request accurately — the amount, what it’s for, your state and any property you own — so we can match you properly first time. Pick a window and we’ll call you.