It’s the first time our generation has faced such a significant challenge such as COVID-19, but we’ve learned to adapt in our struggles, and that’s exactly what we’re seeing with many small businesses.

This episode on the Payments Podcast examines the challenges small businesses are facing over this difficult period and how they can adapt for survival now and into the future.



Rich Williams: We present today's episode in the midst of the global coronavirus pandemic and as businesses all over take measures to contain and minimise the spread of this disease, we will be recording over the phone. Listeners may therefore notice a drop in the quality, though hopefully not in content. Now on with the show.

It's the first time our generation has faced such a significant challenge as presented by COVID-19, but we've learned to adapt in our struggles and that's exactly what we're seeing with many small businesses, but it won't be unusual for business owners to worry about how they'll pay their next invoice and whether or not they'll be paid for their services at all.

Even organisations with billion-pound turnovers have publicised their challenges during this time. So how are businesses without similar availability to resources, expected to manage? In today's episode, we're focusing on the major strain on cash flow that small businesses around the UK are facing, not only during this time, but during the recovery over the next year or so, as well.

I'm Rich Williams, host of the ‘Payments Podcast’, and today I'm joined by Helen Priestman, new business director at Bottomline.

Hello, Helen, and welcome to the podcast for the very first time.

Helen Priestman: Hi Richard.

Rich Williams: So, Helen, let's go straight into it if we may. Now, have we been forced into a cashless society before some of the smaller businesses are ready for this to be the new norm?

Helen Priestman: A really interesting question, Richard, especially given how today we're all adapting to the current situation we find ourselves in. Following the spread of coronavirus cases in the UK, the World Health Organization warned that the virus can be transmitted to customers via banknotes and coins. This has understandably led to consumers and businesses alike to be cautious overusing it.

There are particular industries who have been heavily reliant on collecting cash. For example, cleaning companies, your local milkman, gardeners and window cleaners to name just a few. With the majority of those being totally unprepared to work in a cashless society.

We can help to support and educate those smaller businesses on the alternate payment methods that are available, ensuring that they aren't pigeonholed into accepting only cash as their method of payment.

We certainly wouldn't want to push businesses into a cashless society, but do think that many small businesses can benefit by embracing as many alternative payment methods as their sector, their product business would allow. This could include the adoption of direct debit for the collection of both one-off and regular payments, but perhaps that could be supported with cards or by businesses introducing new payment methods brought about by the government's open banking initiative, allowing for payments to be made directly from the payer's bank.

I think the key for success will be to not limit yourself to one method of payment and offer choice by adopting alternative ways for customers to pay.

Rich Williams: Thanks, Helen, but it's not just cash only or cash first businesses that are struggling. For instance, we're seeing businesses all over the world trying to find the best way to solve the problem of being paid by their customers in an efficient way. Now what are some of the specific and common problems smaller businesses are facing compared to some of the larger ones?

Helen Priestman: Okay. So in our experience, larger businesses already tend to offer their customers much more choice around how they are accepting payment. For example, they might already have an online checkout experience, have the resource to operate a call centre, and it's likely the larger business will already be using direct debit and/or cards plus other methods of payment.

Many smaller businesses don't even realise that these alternative payment methods are available to them. So for many small businesses, they may in the first instance, approach their bank to enquire about accepting payments by direct debit, only to find out they don't have the required balance sheet or trading history to be supported.

So this option is often ruled out by most businesses, totally unaware that BACS facilities, management providers like ourselves even exist and can actually provide the required sponsorship into the BACS scheme within days. Another challenge we've seen is that many smaller businesses are struggling with the distribution of their invoices, cheques and other associated documents. And a particular struggle in absence of any automated payment method or platform is the chasing of late payments.

Over the last couple of years, we've seen an increase in the number of businesses who have already been moving to the ever-growing subscription economy. Whereas, traditionally, it was only things like gym memberships that were paid for via a subscription. Whereas, we now see near enough everything being consumed on a subscription basis.

I also think that larger businesses may have had the luxury of having cash reserves and have had the time to build those up, whereas the smaller business is often living month to month on their cash flow however that might come in.

Rich Williams: So why is that the case for smaller companies specifically? Is it just the cost or the time effort to have a more automated cash collection process, Helen?

Helen Priestman: I think it would be fair to suggest that it's a combination of both those things you've mentioned, Richard. I think the main issue is very much like we touched on earlier in that small businesses simply don't realise that these alternate payment methods are available to them.

Traditionally, multiple payment methods have been the luxury of the corporate with large back-office teams to support both the receipt and reconciliation of funds.

From research conducted, a segment of smaller businesses have also stated that they don't know where to start. Some don't think it's necessary, don't think the volume of invoices they deal with make it worthwhile to automate the process. Yet, still, the majority would like to address their issues with late payments.

There's definitely the perception that to adopt an automated payment process would be time-consuming and a costly project, requiring internal resource and development. Whereas, outsourcing to a managed payments provider can remove the majority of that burden. We often say as trusted experts, “Leave us to handle your payments,” leaving the business to focus on what matters most, which is obviously running and growing the business.

I would recommend that a small business needs to conduct their own research and they will find that the resources are readily available and that there is no doubt, then, a cost based decision to be made on whether they adopt some or all of them. Considering are they right for the business, the product, their customer base and, also, what efficiencies would this bring?

One of the ways to ensure smaller businesses survive and flourish is to give their customer as many choices and as much flexibility for paying, getting money into the business by whatever method best suits their customer.

Rich Williams: Thanks, Helen. So what are the other tangible benefits that a smaller company might expect to gain from an automated system of collection?

Helen Priestman: We've already mentioned earlier about the time and resources and effort involved. And our research shows that 44.7% of small businesses spend anything between one to nine hours a week sending reminder emails to chase late payers. By implementing an automated system, a business would and should expect to see significant efficiencies, freeing up internal resources to focus on other business-critical tasks.

In my experience, there is a clear expectation that the system will know who to collect from, for how much and when, without too much, if any, intervention; ensuring payments are always collected on time, every time. Not only is an intuitive user interface important for back-office personnel to use that can easily interrogate and reconcile payments, there is much of an expectation that any system can provide their customers with seamless, customisable user experience with a payer journey that is simple and straightforward to use.

Most importantly, as we all adapt to working from home, is the requirement for a secure cloud based system that is flexible whilst with an acknowledgment that there is not a one-size-fits-all approach.

Rich Williams: So you mentioned earlier about a subscription model helping smaller businesses through this period. Now could you explain a bit more about how this delivers a cleaner stream of cashflow and whether it's something that any business could adopt to get them through this recovery period?

Helen Priestman: Of course, Richard, there are so many great examples of how a subscription based service has already helped across many different sectors, whether that be telecoms, virtual PAs, food box delivery companies, logistics companies, hosting services, cleaning companies to name just a few.

We operate a lot within the small sports clubs and grassroots clubs, for example, local rugby, tennis clubs, that traditionally collect memberships to give access to the grounds and coaching. So rather than those tennis clubs and rugby clubs accepting memberships in full at the start of the season by cash or cheque, they've already introduced a monthly membership scheme using direct debit as a method of payment.

This is attractive for both the member paying little and often, but it's also hugely beneficial to the club who is receiving funds throughout the year, enabling them to budget and have access to funds for any unforeseen events, such as repairs to clubhouse, new equipment, etc. Obviously, a lot of clubs have had to close their doors to members and players currently.

Where those have already embraced the subscription economy means that we've been able to transition that base from paying a monthly membership fee to paying a donation instead, so supporting the club through these testing times. Yes, the income to the clubs in some cases has been reduced, but they've retained the members and the members see the value in supporting the club’s survival.

Another great example of how moving to a subscription model has really helped is within the dairy sector, who are simply struggling to cope with demand for services. Milkmen have seen a huge surge in demand for deliveries of milk, bread, eggs, and other consumables. Those that have already adopted the subscription model using direct debit as a payment method, have already benefited from reducing the time and energy associated with the collecting of cash. Not to mention the welcomed enhanced security for collectors who would often feel unsafe carrying quantities of cash on their rounds.

With this in mind, the dairies have been able to adapt well to the increase in demand, with little disruption to their existing collection process. And by signing those customers, those new customers up to direct debit, the dairies are hopeful that they will retain a significant portion of those new customers, noting the ease of payment and the reliability of their delivery service.

And a final example to share would be within the charity sector. So never has it been more important for charities to look at encouraging donations and making this an easy process for the donor to ensure they continue to be supported through these challenging times. Many smaller charities have, to date, relied on one-off donations and are actively seeking to look at ways to encourage regular donations, so including direct debit for little and often donations, and also investigating newer ways to donate using the open banking rails for payments to be made directly from the donor's bank.

Charities, I’ve noticed are also enhancing their level of engagement with donors and sharing increased collateral and updates so the donor is invested in the continued work to support those good causes. I think the key here is that by offering a subscription-based model, it allows flexibility choice and is available to all sizes and types of organisations.

Rich Williams: So as we begin to draw this episode to a close, Helen, do you have any specific advice that you'd give to a small business who's struggling to be paid on time? I suppose not only to solve the problems presented during the current COVID-19 crisis, but that also might benefit their business model well into the future?

Helen Priestman: Yes, I think research has certainly shown that the number one answer to best solve late payment issues is to build better relationships with customers. I would suggest that this doesn't have to be done only once there is a late payment issue.

Rich Williams: Really good insights, Helen. Thank you for joining us today, a pleasure having you on the show for the first time. As for our listeners, we hope you're staying safe and well. And if you're a small business struggling with late payments, please do reach out to us.

We'd be delighted to advise on how best to navigate the road to recovery. Unfortunately, that's all we have time for today, but in the meantime, you can listen to more episodes on all things payments at the touch of a button, using your preferred provider. We'll see you all next time.

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