SMBs Readying To Ring In The New Year – With Cash Flow Stress

For many, the New Year is a time of new beginnings, and an opportunity for a clean slate. But recent research from payments company WePay finds most small- and medium-sized businesses in the U.S. will step into 2018 still chained to cash flow problems from yesteryear.

In a survey of 500 U.S. SMBs for its SMB & Money Survey released last week, WePay, along with Survata, asked small business owners about how they are preparing for the end of the year, a crucial time for many entrepreneurs that experience a bump in sales between Thanksgiving and January 1 with the gift-giving holidays.

According to WePay, this boost in year-end revenue is a “double-edged sword,” leading smaller businesses to struggle managing cash flow – especially when it comes to accounts receivable and delayed B2B payments, researchers said.

Late payments, coupled with other headaches like fraud and card chargebacks, mix for a messy start to the new year.

“Small businesses are a big boost to the U.S. economy, providing financial independence, encouraging innovation, and creating employment opportunities,” said WePay Chief Operating Officer Tina Hsiao in a statement. “But it’s clear late payments and issues around fraud continue to be a serious burden for these businesses and need to be addressed.”

With just days to go until Thanksgiving, PYMNTS outlines the numbers behind SMBs’ holiday challenges and New Year struggles.

20 percent of SMB revenue is earned between Thanksgiving and New Years Eve on average, according to the small businesses surveyed by WePay. This holiday time is even more important for small businesses that sell goods rather than services, which earn about 28 percent of their annual revenue during this time. The bump can be attributed to a greater volume of transactions as well as more high-value transactions, researchers noted.

70 percent of entrepreneurs say they have experienced at least one critical business issue between Thanksgiving and December 31, 2016, meaning the end of the year is a period that brings moments of stress, too. That includes fraud and chargebacks, analysts said.

21 percent of SMBs said late B2B payments were a problem at the end of 2016, making it one of the most common year-end business pressures these companies face. According to WePay, challenges in the accounts receivable department occur all year-round, not just during the holidays, but according to the survey, small businesses say this problem was a particularly painful headache towards the start of 2017.

59 percent of firms say they have to follow up with late-paying customers at least twice in order to actually get paid. The survey also  found that two-thirds of SMBs said at least 10 percent of customers don’t pay in accordance with payment terms, a problem that occurs throughout the year, WePay noted.

44 percent of small businesses that experienced fraud during this time said it had a severe impact on their business, rating the situation as a 9 or 10 on the severity scale. Similarly, 40 percent of SMBs that said they deal with issues of card chargebacks at the year’s end also rated the scenario a 9 or a 10. Twenty-six percent of SMBs said they lost money due to chargebacks or fraud in the last year, a statistic that also highlights how this problem is a challenge year-round.

$925 was lost to fraud or chargebacks in 2016, on average, WePay found, but 22 percent of small businesses said they lost $5,000 or more because of these challenges. One company surveyed said it lost more than $1 million.

With the year quickly closing, it’s time once again for small businesses to gear up not only for a spike in sales, but likely a spike in cash flow challenges like late payments, fraud and chargebacks, too. That doesn’t mean SMBs are losing faith, though: a separate survey from Bank of America released this month found nearly three-quarters of SMBs in urban areas are upbeat about their year-end revenue results. Further, most have confidence that 2018 will be a year of economic growth for local and national economies.