The New Pressure Gap Crushing Small Businesses

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. At the same time, customers respond to their own cash shortfalls by pushing back on price increases and delaying payment.

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 continuing Russia-Ukraine conflict to renewed tensions in the Middle East and around critical shipping routes such as the Strait of Hormuz, the upstream pressure on global oil supply continues to feed through to fuel costs at the small business level. 

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 conducted by Bookipi, The Cost of Doing Business: A Global Small Business Snapshot, demonstrates that the pressure gap is widespread. Nearly 90% of SMBs surveyed said that geopolitical events have had a direct impact on operations, with 69% reporting that these events have increased the cost 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.

• "Uncertain steel and nonferrous prices have made planning for any future expansion difficult to say the least."

— Rhys, Hunter Salvage & Site Services, Australia (Construction & Trades), survey participant

• "The current economic climate has led to a clear decline in customer inquiries and new business opportunities, as many clients are becoming more cautious with spending and delaying investment decisions."

— Dakshina K, Kynix Technologies, Sri Lanka (Technology & Digital Services), survey participant

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. They also work on smaller margins, which means they lack the cash reserves needed to bridge the timing gap between payables and receivables.

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.

• "It's not always easy to proportionally pass these costs on to the customer. I usually end up eating some of the costs just to maintain workflow and keep my repeat customers satisfied."

— J. White, Hilltop Concrete & Construction LLC, United States (Construction & Trades), survey participant

• "Work scope is uncertain due to [changing] events around the world. With fuel prices, materials [and labour] getting expensive, [along with the] cost of living, rent, rates and bills rising."

— Prime Roofs, Australia (Cleaning & Maintenance), survey participant

Supplier Pricing and the “Rocket and Feather” Problem

Supplier costs are a primary contributor to the pressure gap. 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 in 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. For larger companies, increased supplier costs can usually be absorbed with better margin management. SMBs don’t have that option.

Raising Prices Can Reduce Demand

Customers are also feeling the financial squeeze, which is creating added pricing pressure.

Even when costs rise, SMBs are reluctant to pass them along to customers by raising prices. The survey shows that 30% of SMBs have seen a decline in customer demand, and nearly one in four wanted to raise prices but were afraid of losing business. Another 32% report they have already raised prices. 

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 increased costs to maintain their workflow.

For many SMBs, setting sustainable prices is a tradeoff between protecting margins and protecting demand.

• "Business has slowed down, and clients do not shop as much as they did before. Invoices are paid late too. Shipping costs for orders have gone up, too."

— MH Ltd T/A Charity's Health and Beauty, United Kingdom (Beauty & Wellness), survey participant

Slow-to-Pay Customers Widen the Gap

Delinquent customer payments are also creating cash flow problems for small businesses. The survey shows that 45% of SMBs cite cash flow or late payments as a major concern, and 27% say clients have become slower to pay in the last six months.

Late payments seem to be a chronic problem. 60% of businesses surveyed said 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. Small businesses have become the de facto buffer of the economy, absorbing pressure from both the supply and demand sides.

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. Small businesses delay hiring and investment in growth to preserve the cash they need as a buffer.

Unfortunately, the problem is structural and endemic, but better financial tools and best practices can help bridge the pressure gap. 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.
• Provide online payment options to make it easier to pay invoices.
• Determine which jobs or customers are consistently unprofitable.
  
  

SMBs can’t control the economic forces that create the pressure gap, but they can take steps to protect cash flow. Materials shortages, tariffs, inflation, and rising fuel costs will continue to increase costs for SMBs. 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.