One-Third of SMBs Still Don’t Get a Choice in How They’re Paid

You pays your money, you makes your choice.

That old idiom does not apply to many small- to medium-sized businesses (SMBs), however.

The PYMNTS Intelligence report “How Instant Ad Hoc Payments Benefit Digital-First SMBs,” in collaboration with Ingo Payments, found that strides are being made in instant payments, particularly for ad hoc (non-recurring) transactions.

The advantages are considerable. Cash flow improves, money arrives ready to be spent (or saved), and business owners can spend less time chasing down money owed and more time running the business.

Improved cash flow and efficient time management are especially valuable to the smallest of the small firms. For the survey of 503 SMB receivers generating less than $25 million in annual revenue, PYMNTS found that ad hoc payments make up an increasing share of monthly revenues.

However, more than one-third of SMB receivers said they lack options from payers.

What SMBs Want

Yet, when there is a choice, SMBs tend to pick instant payments. About 40% of receivers reported they receive ad hoc payments “most often” through instant means, which is up from 20% about a year ago.

The instant payments embrace comes out most strongly in what PYMNTS termed “digitally forward” firms — operating in, say, the gig economy or gaming industries — which encompasses a third of respondents. That leaves two-thirds of companies in the less-digitally-inclined verticals, and those companies use instant payments to get their ad hoc funds relatively less, at 27% of the time.

One-quarter of SMB receivers always choose instant payments when they have the choice, while nearly half choose instant more than 75% of the time. When they do so, they elect to use PayPal and push to debit, which together make up two-thirds of all instant ad hoc funds received instantly by SMBs. In this case, business owners are also consumers, so they’re using the payment modalities (as their businesses accept payments into their commercial accounts) that are also mainstays of their everyday, personal lives.

Digitally forward industries also tend to use push to debit card transactions 37% more than SMBs in industries with less digital momentum.

There is continued growth in financial institutions signing on to the FedNow® Service and RTP® network, the two real-time payments rails in the United States (that enable the sending of instant payments), offering more options to SMBs.

The PYMNTS Intelligence report also found that although SMBs are aware of the advantages of instant payments, 45% of them said the costs associated with integrating instant payments into their back offices remain challenging. That leaves room for providers focused on modernizing accounts payable and accounts receivable functions.

B2B platforms are seeing demand for innovative solutions to modernize payments, particularly internationally.

For senders, offering payments choice helps establish loyalty from these smaller firms. There’s also a financial incentive to offering payments choice (and instant payments). In earlier joint research, SMBs indicated they would offer a discount of more than 4% for early payments, and 54% of SMBs said they would pay a fee to receive instant payments from buyers.