Starting any business and making it prosper is a major undertaking. Part of the challenge is managing the uncertainty, but the financial pressures on today’s small and medium-sized businesses (SMBs) are more structural. Costs continue to rise while payments are increasingly delayed. Immediate expenses need to be paid to maintain operations, and suppliers are quick to pass costs onto customers. This creates a new pressure gap for SMBs.
For small businesses, the problem is no longer just inflation but timing. They are caught between upstream pricing pressure and downstream payment delays from customers. Small businesses have become the economy’s inadvertent shock absorber, bearing the brunt of economic uncertainty while navigating the ripple effects of ongoing global geopolitical tensions. From the ongoing tensions in the Middle East, including intermittent disruptions in the Strait of Hormuz amid a fragile ceasefire, small businesses are facing intense pressure as prices continue to skyrocket.
The Growing Pressure Gap
Small businesses are being squeezed from both sides. On the front end, suppliers are raising prices to address inflation, supply chain shortages, higher fuel costs, material shortages, tariffs, and other financial pressures. On the back end, customers are feeling the same inflationary pressures, so they deal with cash shortfalls by delaying payments and resisting price increases.
A recent global survey entitled The Cost of Doing Business: A Global Small Business Snapshot demonstrates that the pressure gap is widespread. Nearly 90% of SMBs surveyed said geopolitical events have had a direct impact on operations, with 69% reporting increased costs of goods and materials.
Beyond the direct geopolitical impacts, the survey also captured the broader cost pressures small businesses are absorbing. In the past six months alone, 74% reported increases in the cost of fuel, shipping, and travel, 52% saw rises in tools and equipment costs, and 39% in utility costs.
The emerging pressure gap is the space between what small businesses must pay now and what they can collect from customers later.
- “Fuel prices affect all, but especially small businesses because of our tight margins and inability to strongly negotiate any better supplier rates because of our size.”
— Rouvaun Joubert, South Africa (Construction & Trades), survey participant
Increased expenses are hindering SMBs in several ways. These businesses are too small to negotiate favorable terms with suppliers. They are also extremely dependent on repeat business, making it harder to pass on rising costs to loyal customers.
The survey demonstrates that cost increases aren’t limited to one area or industry. They affect tradespeople, cleaners, retailers, service providers, and local operators. For many of these businesses, expenses such as fuel, shipping, and utilities are not optional expenses but required for ongoing operations.
Supplier Pricing and the “Rocket and Feather” Problem
Supplier costs are a primary contributor to the pressure gap, as 78% of SMB owners surveyed said that large suppliers are quick to raise prices but slow to reduce costs when economic conditions improve.
This is a well-known economic phenomenon called the “rocket and feather effect.” When suppliers’ costs increase, prices go up like a rocket. However, when suppliers’ costs decrease, they tend not to pass those savings on to customers right away, so prices fall like a feather.
The challenge for small businesses is that they must accept supplier prices. They typically lack the negotiating power or buying volume for discounts on goods. When vendors feel the squeeze, they raise prices, but they don’t offer relief when market conditions improve.
Some of the comments from the survey are as follows:
- “Increasing prices of fuel affect my business a lot since I have to go to the client. Which increases my prices, and since clients are facing the same struggles, they are less inclined to hire the service.”
— Joshfstudio, United States (Consulting & Business Services), survey participant
Since small businesses tend to operate on small margins, an increase in supplier costs has a bigger impact.
Raising Prices Can Reduce Demand
Customers are also feeling the financial squeeze, which is creating added pricing pressure.
Local service providers such as contractors, freelancers, and retailers are especially reluctant to raise prices for fear of losing business. These types of small businesses rely on repeat customers, so rather than raising prices, they absorb higher costs to maintain their workflow.
For many SMBs, setting sustainable prices is a tradeoff between protecting margins and protecting demand.
Slow-to-Pay Customers Widen the Gap
Delinquent customer payments are also creating cash flow problems for small businesses. The survey shows that late payments are a chronic problem, with 60% of businesses surveyed saying that more than 25% of invoices are paid after the due date, and more than half said some invoices go unpaid.
The late payment problem is particularly acute for small businesses since it sets in motion a chain reaction. Lack of cash due to overdue payments leads to late payments to suppliers and trouble paying for fuel, labor, utilities, and other crucial expenses.
SMBs Are the Involuntary Financiers of the Economy
Since SMBs are at the bottom of the economic chain, they bear a disproportionate share of the financial burden. SMBs are absorbing delayed payments and increased unrecovered costs. While they pay suppliers quickly, they must also absorb price shocks, which they are reluctant to pass to their customers.
SMBs hesitate to raise prices and risk customer relationships; at the same time, they are asked to extend informal credit to customers through late invoices.
In many ways, SMBs are the foundation of the economy, but the growing pressure gap is slowing SMB growth. Some strategies to consider include:
- Review pricing regularly rather than applying an annual increase.
- Break out the cost of fuel, materials, and travel where appropriate.
- Shorten payment terms for new customers.
- Require deposits or milestone payments for larger contracts.
SMBs can’t control the economic forces that create the pressure gap, but they can take steps to protect cash flow. The best defense is to take proactive steps to minimize their impact and protect their profit margins.
Tim Lee is the Founder and CEO of Bookipi, an international SaaS company trusted by millions of small businesses worldwide. Before entering tech, Tim worked in the trades as a tiler—an experience that gave him first-hand insight into the daily challenges entrepreneurs face. Determined to achieve more, he taught himself software development and product design, building Bookipi from scratch after seven failed startups.
Under Tim’s leadership, Bookipi has evolved into a trusted suite of AI-driven tools that simplify invoicing, payroll, websites, and CRM for business owners everywhere. His “failurepreneur” journey fuels his mission to make business management simple, accessible, and rewarding. Known for his clarity and authentic entrepreneurial voice, Tim continues to advocate for practical AI adoption that helps businesses work smarter, not harder.