If the great digital shift has upended the ways in which consumers buy and receive goods, it’s also highlighted friction inherent in the way businesses themselves go about getting those goods and services to market. And the one thing that underpins commerce – no matter the vertical, no matter the size of the business – is cash.
Specifically: cash flow. The cash that’s coming in the proverbial door – and leaving, too, where sales make their way into enterprises’ accounts, pay operating costs (wages, for example), and then leave those accounts to pay suppliers – it’s all part of a continuum of fund flows that can help firms thrive in tough times and stay afloat in lean times.
The pandemic has hurt, and continues to hurt, smaller firms disproportionately, as they have been (relatively) dependent on foot traffic and face-to-face interactions (think restaurants).
As a result, these Main Street SMBs, as we’ve called them, have had to shift their operations through the last several months with an urgency that might not have been there before the pandemic. Brick-and-mortar firms have shifted to digital conduits that seek to do everything from drive sales (through aggregators) to get cash in the till with speed, settling transactions the same day (as they embrace innovative new financing products).
One of the simplest ways to improve cash flow in times of crisis, and as top lines slide, is to cut operating expenses. And indeed, in the latest 2021 “Main Street Survivor Study,” 18 percent of the more than 550 firms we surveyed said they had reduced payroll by cutting staff. There has been a number of stopgap measures in terms of stimulus programs geared toward rendering that tactic unnecessary, including the Paycheck Protection Program). Reducing staff boosts unemployment levels and has the ripple effect of reducing consumers’ own cash flow and spending power. It’s a strategy that does not work out well, especially not long-term, for anyone.
The most obvious and visible digital shift among these smaller firms has been to embrace a larger digital presence, where 59 percent of firms have said they get at least some sales from websites. Thirty-three percent said they get some sales online through third-party aggregators. In addition, 38 percent have started advertising on marketplaces.
Of course, the advent of new digital offerings tied to payments themselves can help SMBs manage their cash flow with more efficiency. There is a lag time between when revenues are recorded and when cash actually hits the account – and 76 percent of firms surveyed by PYMNTS have reported grappling with cash flow shortages.
Smoothing The Cash Flow Gap
Real-time settlement offerings can help smooth that gap. In one example, in research conducted jointly between Visa and PYMNTS, 60 percent of surveyed businesses that are not currently using online marketplaces would like to do so. Also, 60 percent of surveyed firms selling across online marketplaces would take their business to one that offers real-time settlement (such as through Visa Direct). Visa and PYMNTS found that marketplaces can capture a collective $82 billion to $141 billion per year by adopting real-time settlement options.
There’s also the friction tied to B2B payments, which are so bedeviled by paper checks. As reported, Mastercard has estimated that 38 percent of SMBs stated that late payments and time-consuming cash and check processing were causing cash flow hiccups. Account-to-account and digital payments can help smooth those bumps, as can same-day settlement. As reported earlier this month, same-day ACH usage rose double-digit percentage points year over year in Q2 2020.
SMBs, then, are embracing tech and speed to address cash flow challenges they might meet during the pandemic – and beyond.
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