Solving for SMB payments, banking and cash flow

Banks are missing an opportunity by not offering solutions that can track expenditures, monitor shortfalls or surpluses, and calculate ‘what if’ scenarios.

We live in uncertain times: a global pandemic, war in Europe, worldwide supply chain disruption, a fragile environment, and inflationary and recessionary pressures. Against this tumultuous backdrop, businesses are more acutely aware than ever that they must have the flexibility and reserves to withstand the unexpected.

Our seventh annual Payments Barometer survey asked 1,600 financial decision-makers in the U.S. and the U.K., across a range of business sizes, how they expect the industry to evolve over the next 12 months. Close to three quarters told us that receiving money has never been more important, perhaps a reflection of inflationary pressure across both sides of the Atlantic.

It’s well known that cashflow issues can shutter small and mid-sized businesses (SMBs) that would otherwise be viable: a 2020 study found inadequate cashflow is cited in almost 30% of business failures. According to the Small Business Administration, half of new small enterprises fail within five years and 70% within a decade. How can we improve the odds?  Undoubtedly a meticulous understanding of how cash flows in and out of a business positions companies to grow strategically.

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Our research report indicates that forecasting remains a major issue for companies of all sizes. Forecasting has worsened since 2021 in the U.K, with over half of businesses stating that their forecasts are rarely accurate. In the U.S., this figure tops 60%.

Of the highest concern is that around one in three SMBs are still managing their numbers in Excel – with all the potential for human error that entails. Not only is this approach incredibly time-consuming, it also limits agility. Introducing automation and an element of machine learning could make it easier to manage liquidity and the operating cycle.

Banking institutions should encourage SMB customers to transition from old systems such as spreadsheets to cash flow management (CFM) software solutions and, as they position themselves for growth, automated treasury management systems. The advantages include real-time views of cash positions across all banks, accounts, currencies and countries.

Banks are missing an opportunity by not meeting the demand for these types of solutions. With the right value proposition, SMBs are happy to pay for tools that can enable them to track expenditure, monitor cash shortfalls or surpluses, and calculate ‘what if’ scenarios to understand future probabilities.

Adapting to new ways of banking

One major impact of the COVID-19 pandemic quickly felt within the U.S. banking industry was that the old ways of depositing checks at a physical branch were largely replaced by a digital approach. This transition will continue as commercial customers come to expect the same level of nuanced interaction on offer to consumers, particularly as businesses expand and find they need more tools to accommodate their ambitions.

At the same time, our report shows that businesses themselves are increasingly turning away from traditional payment methods: in the U.S., more than a quarter have stopped accepting cash and one in five have stopped accepting checks. Banks will need to offer more robust, intuitive online alternatives for a business community that is becoming increasingly digital native.

Real-time or instant payments are one potential solution for cash flow management that can enable businesses to keep cash longer while paying suppliers and staff or reimbursing customers on time.

In the U.K., just under half of those interviewed say they are using real-time payments. However, the uptake of these payments is lower among small businesses (with only 40% currently using them). In the U.S., 60% of businesses claim to have adopted real-time payments, and another 25% say they plan to in the next 12 months.

Banks could do more to promote the adoption of real-time banking and explain the benefits for corporates in terms of building resilience around cash flow.  That includes education for SMBs on the benefits of real-time payments. It makes sense for banks to offer more need-specific commercial banking services. This includes the needs of small businesses, for whom cash flow and liquidity have always been critical—and perhaps never more so.

It’s important for all of us to understand that SMBs are actual businesses. They are not consumers in need of traditional retail products, and we should not assume that their challenges are solved with consumer-adjacent products and tools.  Giving customers a one-stop shop with multiple liquidity solutions in a single portfolio will ensure that cash continues to flow for some time to come.

Curt Raffi is chief product and innovation officer for banking solutions at Bottomline.