Business Payments Barometer: SMB respondents indicate need for automation as cashflow and payment terms pose challenges

Two years of pandemic, globally-disrupted supply chains and shifting social and political sands have tested the resilience of small businesses the world over. And lest you you think an end has come to the challenges smaller businesses face in overcoming cashflow issues there’s an entire new set of macro-economic realities that will reshape the strategies of those serving the needs of small businesses.  

For example, business spend management and payments fintech Brex recently informed some companies that if they don’t meet future thresholds for service delivery, they’ll need to find business solutions elsewhere. Brex’s strategy shift is just one example of those macro realities that brighten the spotlight on the needs and pain points of small businesses as they navigate ongoing challenging economic conditions.

Those needs and pain points were painted in detail through Bottomline’s 2022 Business Payments Barometer, released just two weeks ago. They include the range of usual suspects including cashflow, payments and supplier relations. For the Barometer’s purposes, we set $2m as the revenue threshold for dividing small and medium sizes (medium measured up to $120 million. Both segments have some unique dynamics, (defined in the Barometer) that demand access to a digital infrastructure built for business instead of the consumer-like banking tools normally afforded to the SMB community.

Cashflow is certainly the biggest issue. According to the Barometer “COVID-19 compelled businesses to stress-test their resilience around cashflow and liquidity management. Businesses are now acutely aware that they need to have the flexibility and reserves to withstand geopolitical uncertainties and unexpected crises.” The data in the report suggests SMBs – in the U.S. as well as Great Britain - are trying several tactics to meet their current needs as well as future uncertainties. Among them:

Setting priorities: Cashflow issues aren’t limited to SMBs. The Barometer report – which surveyed 1,600 finance leaders at non-bank companies in the US and GB – shows 69% of businesses in GB and 73% in the US agreeing with the statement that “receiving money has never been more important.” This will certainly be magnified by rising global inflation. When drilling down into the details for this question the numbers actually drop for SMBs—where 67% of British and 65% of American small businesses were in agreement. For medium-sized businesses (greater than $2 million in revenue) the numbers were very close with 65% agreeing in GB and 72% in the US. However, the margin for error is much smaller for SMBs, with cash flow issues causing 82% of all SMB failures in the US, according to a report from US Bank.

The Bottomline here is that automation for the “pay and get paid” process is even more critical in a tough economy. An automated platform makes AP, AR and invoicing more dependable and efficient, which is paramount in the wire-walk of managing cash flow—especially for smaller and medium-sized businesses. Done well, automation also protects against payment fraud and helps identify opportunities for growth.

Adjusting payment terms: Businesses of all sizes are holding on to their cash longer, according to the Barometer findings, even if it means they’re paying vendors late. Only 16% of GB and 18% of US businesses said they have never paid a supplier late. Why? To protect cashflow (46% in GB and 45% in the US). Businesses are also willing to negotiate payment terms as a liquidity management tactic, confirmed by 70% of businesses in GB and 76% in the US. Because this is the first year that we have included the US in the Barometer, there is no historical data. But for GB there is a significant jump in adjusting payment terms since 2021 when it was 64%. Adjusting payment terms is less widely used by SMBs as reflected in the data, but the relative drop could very well be a function of lesser negotiating clout with suppliers.

The Bottomline on payment terms is that you as a small or medium-sized business need to get paid on time as much as you want to pay others on time, even if it’s just-in-time. Automation should give you a range of solutions across collection methods including Bacs in the UK, direct debit, cards or virtual cards.

Forecasting: If this trend toward prioritizing cash in the door and adjusting the terms suggests a volatile situation for SMBs, you’re right. When asked if they agreed with the statement “cashflow forecasts are seldom accurate in my business” 46% of GB small businesses said ‘yes’, as did 60% of those in the US. That rises to 52% and 64% respectively for medium-sized businesses. The reason for this can be found in the methods being used for forecasting. In GB a stunning 38% of small businesses still use manual Excel processes to manage cashflow; 31% in the US.  And the findings are equally surprising for medium-sized businesses—where  27% of British businesses and 32% of American businesses use Excel for managing cash.

The Bottomline on forecasting centers around more sophisticated tools for managing cash flow and forecasting, including treasury management systems (TMS). In both countries, 26% of small businesses said they are using treasury management tools.  More sophisticated cash management and forecasting tools, including complete TMS  can work for businesses of all sizes to provide scalable, real-time views of current cash position.  They can also make forecasting a more accurate process.

Related content:

• Article: Cashflow a concern for business leaders as SMEs face new challenges
• Brochure: Direct Debit Management
• Video: Take control of your cashflow