The big cash crunch: three ways fintechs can help small businesses improve cash flow

As every small business knows, cash rules all, and a lack of it finishes SMEs more frequently than any other business challenge. But how can the fintech industry help to support small businesses secure their cash flow?

Cash flow has always been the difference between survival and failure for businesses. Even before the COVID-19 crisis, research showed that the UK late payment debt had risen to more than £23 billion. That’s money that should be in small businesses’ bank accounts but isn’t. 

Unsurprisingly, that situation has only gotten worse. Figures from the Federation for Small Businesses showed that the majority of small businesses (62%) have been subject to late or frozen payments in the wake of the COVID-19 outbreak. This, despite only a small minority having made changes to terms to accept later payments. On top of this was the fact that 57% of UK small and medium sized enterprises had just three months cash reserves or less in the midst of the lockdown. 

It’s a desperate state of affairs, compounded by the fact that cash as a financial transaction is at a crossroads. The pandemic drove a significant portion of the population to shift wholesale to contactless and digital forms of payments – good for halting the spread of the virus, not so great for the millions of small businesses that cannot accept card payments. It might seem odd coming from a fintech, but the death of cash is not to be celebrated if it means the end of small businesses. In fact, fintechs can, and should, be a vital source of support for those companies that need to improve their cash flow. 

Three ways to improve small business cash flow

There are three broad ways in which small businesses can improve cash flow:by  having a way of actually taking payments other than cash, by speeding up time to settlement and by being able to understand how much cash they actually have at the touch of a button. 

For the former, that means having easy-to-use, cost effective and straightforward ways to take card and contactless payments. Whatever solution SMBs decide is best for their business, now is the time to start accepting payments via card and contactless and to stop being reliant on cash transactions alone. 

There are a variety of Point of Sale (POS) solutions that companies can implement, whether they are dedicated POS terminals or dongles that can be added to existing devices.

How is this different to before, you might ask? It’s true that the reason a lot of businesses don’t have the necessary means of accepting cards and other forms of payments is because they’ve been put off in the past. That might have been due to the need for additional hardware, an ongoing cost, or having to install new technology in their business. There was even the issue of the unavailability of hardware during the pandemic.

To overcome these challenges, small businesses should look towards software-based Point of Sale (POS) paytech, which allows anyone with an Android device to start taking payments right away, without the need for any additional device or technology. 

Another issue that needs fixing is the time between sale and settlement. This is where the fintech industry needs to work together, and with its clients, to help cut down what can still be a five day wait to settle that merchants currently experience with card and contactless payments.

To achieve this, POS and card issuing needs to be combined – if card providers integrate with POS vendors, merchants will enjoy a much faster time to settlement, ensuring that they have a better handle on their cash flow. 

Finally, having better tools and analytics can do immense work in helping businesses understand their own cash characteristics. They can access available cash and generate accurate forecasts, all at the click of a button, thanks to integrated analytics. This requires better collaboration between software vendors, fintechs and banks, using APIs and open standards to easily connect data between their disparate systems. 

An absolute imperative

The UK currently leads the world as a fintech hub, and we have the most advanced ecosystem of companies in this space in the world. Yet it’s all for nothing if we don’t have the clients and customers, in other words the small business backbone of the country, to work with us. That’s why it’s imperative every fintech business helps its clients and its prospective clients grapple with the challenges that lie ahead.

By working together as an industry, we can help small businesses to follow the trend that consumers are driving and move away from cash payment, but not be disadvantaged in terms of time to cash. 

We can help make accepting payments easier, speed-up time to settlement, and then embrace the power of analytics and open APIs to make our systems interoperable. And if we do this, we can help millions of small to medium sized businesses face-up to the challenge of the £23.4bn cash crunch with confidence.