Closing The Paper Check To Instant Cash Flow Gap For America’s SMBs

Turn the clock back a year and the world for small businesses was very different on the eve of the 2019 holiday-shopping season. The economy was still booming and small businesses were doing well — so much that cash flow wasn’t a top concern, Lisa McFarland, Ingo Money’s executive vice president and chief of product, told Karen Webster in a recent conversation. 

According to Ingo’s data, only 37 percent of small businesses were citing cash flow as a major concern, down from more than 60 percent two years earlier. But the past six months have made a huge difference, particularly since it included a global pandemic, a nationwide shutdown of physical commerce and a slow (and highly digital) road to recovery for both consumers and merchants. That’s left many small- to medium-sized businesses (SMBs) cash-strapped and looking to bankers, acquirers, ISOs and FinTech partners for help. 

“Cash flow was a little less important a year ago than it is today,” McFarland said. “Unfortunately, now it is an acute problem.” 

She said what SMBs are increasingly seeing is that real-time movement of money is incredibly critical to maintaining positive cash flow going forward, so they’re looking for their partners to pair them up with it post-haste. 

Making The Move To Modernization 

When one looks out at the small-business landscape, it can almost be like a trip in the way-back machine when it comes to payments. 

A stunningly high proportion of small- to medium-sized business (SMB) payments are still happening by paper checks, which often means businesses aren’t getting access to money until 15 days after providing goods and services. In fact, it can take ever longer if an invoice has to be processed. 

This sluggish access to funding can be a problem across the board, from when SMBs are trying to draw on lines of credit (if they can get credit at all) to when they’re trying to settle point of sale (POS) transactions, McFarland said. 

And while lots of things weighing down SMB cash flows are complex — including falling revenue and limited access to credit — slow access to money they’ve already earned isn’t what SMBs want. 

Take, for example, something like same-day settlement. McFarland said that “is absolutely an area where we are seeing and hearing increased demand from merchants. And we’re seeing players in the marketplace like Square increasing their efforts to promote that service as a product offering within their POS suite. That is clearly in response to the struggles that small businesses are facing right now.” 

Which raises the obvious question: if Square is doing it, why isn’t every other player in the game jumping on top of this as well? The reality, McFarland noted, is that acquirers, banks and ISOs themselves might not quite be positioned to make that offering to SMBs due to their own legacy technological limitations. 

“There is some increasing focus on small business, but a lot of the institutions that support them have inherent challenges still with technology and infrastructure,” she said. “They are not able to be as responsive as really I think many of their small business customers need at this moment in time. The big challenge that is actually at the root of many of the other challenges that banks and ISOs face is that they lack the direct digital interface with their businesses to be able to seamlessly offer the instant services.” 

By contrast, Square comes built as a fully integrated customer experience for businesses. That gives the firm the ability to quickly roll out instant-payments capabilities and communicate and engage with merchants on such an offering, which makes the addition much easier to get going. 

But McFarland noted that as the cash-flow situation SMBs face becomes increasingly difficult, instant payments are becoming a more powerful and active draw as small businesses select the partners necessary to get them to the pandemic’s other side. 

“The platform providers that are offering [it] are definitely seeing increased demand, and an ability to help these companies whose businesses can be saved by improving their access to their money so they can support their ongoing operation more efficiently,” she said. 

Making It Through The Crisis 

The pandemic has been hard on all business segments, but McFarland said the degree to which SMBs have “taken it on the chin” is fairly remarkable. 

However, she added that the pandemic has also exposed is how much grit and willingness to think outside of the box also comes built into the SMB segment. McFarland said many small firms are finding inventive ways to “get that money moving” more quickly into their coffers. 

For instance, SMBs are combining Ingo apps with the use of partner firms like PayPal and American Express to get checks instantly digitized, deposited and available for use. 

“We are also seeing that certainly RTP is playing a bigger role, though clearly that’s not a ubiquitous option at this point for small businesses unless they have relationships with larger financial institutions,” McFarland said. “But frankly, small businesses also turn to P2P apps to get paid instantly to sort of meet the need and fill this gap that exists for them.” 

After all, SMBs are scrappy and unbelievably determined when it comes to getting their cash flow under control and setting their ships right in the post-pandemic period. 

McFarland said providers that can meet those demands would win business in the future. But she said the ones that don’t will likely get left behind in favor of those that bring SMBs “the tools, technology, insights and data that they will now need moving forward [and] align with the faster access to funds they are demanding.”