Cindy is the proud owner of an interior design business. She and her six employees spend their days choosing fabrics and accent pieces for commercial spaces. Cindy and her small but dedicated team recently remodeled a great beachfront restaurant, and it couldn’t look better. But there is a problem: the owner of the company has not paid Cindy yet.
Cindy is now sitting at the kitchen table, staring at the barrel of her expenses. How will I pay my employees for their work? she worries, as the cash flow has stopped momentarily. They probably won’t, or may not, wait to be paid until she receives payment from the customer.
This is a challenge that SMEs face on a daily basis. The bills keep coming in while they wait to receive the money to cover their expenses. According to a recent Mercator study sponsored by Mastercard titled The cash flow dilemma, “Out of 2,000 small businesses in the US, cash flow is one of the top concerns a small business has.” About half (48%) of the small businesses surveyed are concerned or very concerned about cash flow.
The top 3 concerns of SMEs and the growing focus on cash flow
Among the 2,000 SME owners surveyed, the top three concerns are:
- Client retention
- Cash Flow
- Employee retention
49 percent said they were very concerned or concerned about customer retention, closely followed by cash flow (48%) and employee retention (47%). In 2018, about 4 in 10 SMEs reported that cash flow was specifically an extreme concern or concern. That number increased to 55% in 2020. Only 16% of those surveyed in 2020 said cash flow was not a concern or only a minor concern.
Sarah Grotta, director of Mercator Advisory Group, knows that cash flow concerns are keeping SMB owners awake. She believes that products and solutions are needed to help solve problems related to accurately forecasting sales and income, understanding the timing of income and expenses, and establishing the correct cash flow controls while at the same time developing a cushion of savings for unexpected events.
Frequency of cash flow that causes delays in regular purchases.
Almost all small businesses are concerned about cash flow, but it should be noted that a relatively small number of these businesses are prevented from making purchases. Of all SME owners surveyed, 21% said their daily routine purchases were hardly ever affected. Thirty-seven percent said their routine purchases were affected 1-2 times a year, 30% were affected 3-4 times a year, and 8% were affected almost every month. Only 4% reported experiencing routine shopping delays due to cash flow problems more than once a month.
However, the report notes that a lack of cash has long-lasting effects, even once. This can affect the way a business views its cash flow for a long time thereafter.
Tech-savvy SMEs are more concerned about cash flow and the effects of COVID-19
Without a doubt, the pandemic has affected all aspects of the payments industry. While the growing concern over cash flow started years earlier, it is clear that the dramatic increase from 2019 to 2020 was due, at least in part, to the unexpected outbreak of COVID-19.
According to the report’s data, 70% of tech-savvy SMEs have cash flow concerns and 65% have been affected by the effect of COVID-19 on cash flow. These business owners are more inclined to say that their cash flow concerns have been intensified by COVID-19 and are more likely to be early adopters of new technologies for their businesses.
Additionally, of the SMBs with an average knowledge of technology, 56% had cash flow problems and were affected by the effect of COVID-19 on cash flow. Laggards, or people with less experience, were less concerned than the other groups (39%) and experienced fewer COVID-19-related cash flow problems (48%).
The pandemic has increased the number of small businesses seeking outside sources for additional help with their financial concerns. Banks, financial advisers, and accountants are great resources to look for when trying to address these concerns.
When it comes to affecting change to scale, Silvana Hernandez, Senior Vice President of Digital Payments and Laboratories at Mastercard, believes that we are at a tipping point, “The need to offer more for individuals and SMEs in the digital economy has existed. For a long time, and the emergence of a global pandemic has created the necessary inflection point for businesses and consumers to begin to embrace change. Faster payment options like Send Mastercard allows merchants to have near real-time access to transferred funds, such as quick trade settlements, SMB loan disbursements, and insurance claim payments. “When funds are instantly available to SMBs, it strengthens their liquidity and trading position. cash flow and its performance.
SMEs can also partner with providers of early access to wages, which can alleviate cash flow problems for their employees. “Instant payments replace the waiting days that are common with ACH transfers. The challenge for the financial services ecosystem is to take the technology already developed to close these gaps and put it in the hands of those who need it most, when they need it most, ”Hernández concluded.
To learn more about how Mastercard Send is solving the cash flow conundrum for SMEs and other recipients, visit www.mastercard.com/send