How Tariffs Can Impact Your Supply Chain and Your Business

If you have looked back on your balance sheet, you most likely saw the impact of supply chain disruptions in recent years. Uncertainties such as the COVID-19 pandemic, geopolitical instability and inflation highlight just how vulnerable global trade networks can be, forcing businesses to adapt quickly to new challenges. Among these, tariffs remain potential obstacles.

Tariffs — government-imposed taxes on imported goods — can significantly affect your company, whether you source materials internationally or not. These trade policies do more than just increase costs; they can disrupt supply chains, alter inventory strategies and squeeze cash flow. If you don’t have a strategy to navigate tariff-related risks, your financial health and long-term growth could take a serious hit.

By understanding how tariffs influence your operations and implementing proactive strategies, you can build resilience and protect your bottom line from unexpected financial strain.

How tariffs can affect business

Tariffs are designed to make imported goods more expensive, encouraging domestic production. However, in practice, tariff costs are usually passed on to purchasers.

Even if you source materials from domestic suppliers or unaffected regions, your suppliers may still import goods subject to tariffs. This means tariff costs could be hidden within the tiers of your supply chain. The ripple effect of complex, global supplier networks can impact small, midsize and large suppliers.

For example, imagine a business that manufactures kitchen appliances. It may buy small metal components from a domestic supplier, but that supplier imports steel from China. If a 25% tariff is imposed on Chinese steel, a supplier may pass the increase on to the appliance manufacturer. A metal component that used to cost $1 might now be $1.25, raising the cost of goods sold (COGS) and putting sudden pressure on margins.

To compensate, the appliance manufacturer could raise prices on the finished appliances. However, if buyers are price-sensitive or competitors find ways to keep costs down, demand for its products could drop. 

Reduced demand and higher costs may force the manufacturer to find alternative suppliers. This process is often time-consuming and costly in itself, causing production delays and increasing buyer lead time. What’s more, foreign governments may impose retaliatory tariffs, which can further destabilize global supply chains and impact international sales.

What to do about rising costs of tariffs

You’re most likely aware that cash flow is essential to sustainable business operations and growth. The key to navigating tariff impacts — or disruptions of any kind, for that matter — is having a reliable and flexible source of cash flow while maintaining strong buyer and supplier relationships. Here are some specific strategies to strike that balance.

Know where you’re vulnerable

Start by evaluating every link in your supply chain, including tier 1, 2 and 3 suppliers, for potential tariff risks. Stay current on the latest trade news and developments to uncover how price increases or disruptions may become entangled with your operations. 

As part of this sensitivity analysis, it’s also important to model various tariff scenarios and their expected impacts when forecasting cash flow. For example, analyze how different price increases may influence demand or how indirect tariff costs (such as exchange rates and shipping) could affect your metrics. Use advanced data analytics tools or collaborate with financial advisors to get an accurate picture of your key performance indicators (KPIs) under different market conditions. 

C2FO’s Invoice Central provides a comprehensive view of all invoices from multiple buyers in the C2FO network without logging into separate buyer portals. C2FO customers can log in to their accounts to quickly review invoice statuses and estimated payment dates. If you know your company may be facing a cash crunch, this tool can help you evaluate your options. 

Additionally, make note of your key business relationships. The goal here is to anticipate risks and understand what compromises you can reasonably afford when you reach the negotiating table with strategic buyers and suppliers.

Negotiate with your suppliers

Communicate closely with suppliers and agree on a strategy for navigating potential tariff impacts and pricing changes. This could mean, for example, sharing the burden of a price increase. Some suppliers may be willing to extend payment terms, which will increase your cash on hand and provide a buffer to adjust to rising costs. While it’s important to stay flexible with critical suppliers, agree on terms that fit within your financial constraints and forecasting. 

You can also consider diversifying your supply chain and finding more cost-effective suppliers in regions with favorable trade conditions. This can strengthen your supply chain amid tariffs and other market disruptions while reducing costs.

Revisit your pricing strategy

Price increases aren’t always avoidable, but how you implement them can make a big difference in buyer relations. Before making any changes, research your competitors and understand how price-sensitive your market is. If direct price hikes would hurt demand, consider alternative strategies.

For example, you could introduce a tiered pricing model, where buyers can choose between different service levels or product quality at varying price points. Another option is dynamic pricing, where prices adjust based on demand, seasonality or other market conditions. You can also offset price increases by offering additional value, such as working with buyers to address specific pain points or providing enhanced customer service.  

When communicating price changes, transparency is key. Give your buyers plenty of notice, ideally two to three months, and be clear about why the change is happening. If a sudden price increase is necessary due to a specific circumstance, provide a clear explanation and share how you plan to adjust if conditions change. 

Find other ways to reduce costs and boost cash flow

While tariffs may be out of your control, there are other ways you can reduce costs and take charge of your cash flow. One option is diversifying your revenue streams. Are there products or services you can introduce that aren’t as sensitive to supply chain disruptions and tariff costs? Expanding into new markets can also help offset losses in tariff-impacted regions.

Streamlining operations is another way to free up cash. Examine your expenses and identify areas where you could minimize costs without compromising quality. This might include leasing equipment instead of buying, or hiring contractors over full-time employees. If you’ve invested in productivity solutions in recent years, such as automation tools, inventory management software or AI, revisit their function in your business and find ways to maximize their return on investment. 

Build tariff resilience with early payments

One often overlooked way to build cash flow and protect your business against disruptions such as tariffs is through your buyer invoices. However, instead of relying on more rigid invoice financing options like invoice factoring and supply chain finance, you can directly request early payments from your buyers in exchange for a small discount. 

C2FO Early Pay allows you to improve cash flow, build an emergency fund and offset rising costs — all without taking on more debt. Early Pay gives you more flexibility and control over your working capital by allowing you to choose which invoices to accelerate and select a discount rate.

If your company has existing buyers within C2FO’s network, you can log in to C2FO’s platform and request early payments on any approved invoices with those buyers. If a buyer accepts your request, you can receive payment (minus the discount) in as little as 24-48 hours. This strategy can help your business:

• Boost cash flow, giving you a buffer against tariff-related cost increases.
• Establish win-win buyer relationships, which may be crucial if you need to raise your prices.
• Maintain strong financial metrics, ensuring you have enough liquidity to navigate volatile market conditions.

Turn tariff challenges into a strategic opportunity

Tariffs are sometimes unavoidable in global trade, but they don’t have to derail your company. Understanding their impact and proactively addressing risks is key to minimizing financial strain, even during economic uncertainty.

Tariffs can create complex challenges for suppliers of all sizes. However, remember that they can also open new doors to financial resilience and market opportunities you might have otherwise overlooked. By leveraging solutions such as early payment programs, your business can stay ahead of rising costs and position itself for growth when tariff impacts stabilize.Call-to-action: Find your buyers in C2FO’s network and discover how much working capital you can start accelerating today.