How fintechs can support small businesses through the big cash crunch

It’s an often repeated axiom, but cash flow kills small businesses more frequently than any other business challenge. Brad Hyett, CEO of phos, outlines how the fintech industry can step-up to help support small businesses improve their cash flow.

Last year, Bacs Payment Schemes conducted research into just how much late payments are costing the UK economy, and it showed that 34% of SME business owners experiencing late payments say they have to rely on overdrafts to help them meet their monthly obligations.

Worse, the ‘State of Small Business Cash Flow’ report from Intuit Quickbooks showed that 1 in 7 small business owners have been left unable to pay employees because of cash flow issues. This equates to a huge 2.2 million people in the UK not being paid on time.

All of this research was conducted prior to the COVID-19 pandemic, and the economic challenges that this has caused. It’s in this context that the Federation of Small Businesses (FSB) last week called on policymakers to act, as the late payments challenges facing small businesses had ballooned, rising 80% to £23.4bn, according to data from Pay.UK.

Research from the FSB showed that the majority of small businesses (62%) have been subject to late or frozen payments in the wake of the COVID-19 outbreak.

A systemic challenge that COVID-19 has caused is a sudden and significant drop in the usage of cash by many consumers. Since the UK moved into a period of “lockdown” in response to the Coronavirus outbreak, cash usage declined by 50% (according to research from Link, the ATM Network). In spite of the rapid decline of cash usage, there are currently millions of small businesses in the UK who cannot accept card payments.

I strongly believe that the fintech industry can step-up to help support small businesses improve their cash flow and help them to better manage this crucial part of their business.

Firstly, at a practical level, providing these merchants and small businesses with a way to take card and contactless payment is a good place to start. 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.

Traditionally, merchants who haven’t moved to these systems have been put off by the need for additional hardware, an ongoing cost, or the need to install new technology in their business. At times during the pandemic, the availability of this hardware has been an issue too.

The key to overcoming these common hurdles can lie in software-based POS paytech, which allows anyone with an Android device to start taking payments right away, without the need for any additional device or technology. 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.

Moving beyond giving merchants the means to accept non-cash payments, the next challenge is to speed up the time to settlement. Again, the fintech industry needs to work together, and with our clients, to help provide a speedier time to settlement than the typical, up to five days’, wait that merchants can experience with card and contactless payments.

Combining Point of Sale with card issuing is the way forward here. If you can combine POS with a card issued by the provider, you can improve the time to settlement to reach the merchant that same day.

The other key area where fintech can help is by providing better tools and analytics to understand the cash characteristics of a business, know how much cash is available right now, and generate an accurate forecast for cash flow at a click.

Analytics technology is more widely available now than ever before, and companies need to offer solutions which include this for their customers. Beyond this, software providers, fintech companies and banks need to collaborate together using APIs and open standards to help easily interchange data between systems and help SMEs to quickly and easily understand and forecast their cash position.

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. Every fintech business needs to help its clients and its prospective clients grapple with the challenges that lie ahead.

We’ve done our bit by offering to provide free payment acceptance via our app to any business providing essential delivery services to the elderly during the pandemic, or for those whose businesses have been affected to pivot to a delivery model, for instance.

But this is really just the start. 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.

Brad Hyett is CEO of phos.

The views and opinions expressed in this Viewpoint article are solely those of the author(s) and does not reflect the views and opinions of Fintech Bulletin.