The COVID-19 pandemic is drastically shaking up businesses and consumer behaviour. The virus is already precipitating change across industries — and there are drastic measures being taken to contain it.
It is still too early to measure the depth of the pandemic affecting our core constituency. Small and medium enterprises, in particular, are already or will soon be facing a liquidity crisis that could wipe out entire segments of the economy.
Less financial stability to survive a crisis
Small businesses typically operate with a thin margin for error, even in times of economic growth. Unlike larger firms with cash cushions to help weather short-term revenue declines, most small businesses have only an average of 27 days of cash to survive on.
A study released recently by Goldman Sachs found that more than half of small businesses have less than three months of cash reserves. Quick action is required to provide cash injections and other aid to small businesses.
Generally, government agencies are founded on 20th-century technology that is just not ready for a crisis like a global pandemic in the 21st century. Inefficiencies and delays are likely to arise for small enterprises through the process of disbursing relief funds.
The number of small businesses needing help is astounding, so solutions need to be able to withstand the launch at a national scale.
Fintech solutions could ease cash flow burdens
There is also an overall acknowledgement that small businesses often perceived access to funding as being a challenge. Banks often make financing appear inaccessible to SMEs.
Banks have traditionally struggled to provide targeted services to small and medium-sized enterprises, finding it difficult to either scale up from the services they offer to consumers or scale down from the solutions they develop for large corporations, which are often more agile and focused than larger institutions. Small businesses require more choices than before when it comes to selecting financial and product providers.
Many Fintechs utilise open banking and open data to deliver personalised and timely service to their SME customers, helping them comprehend, run and grow their businesses. Fintechs that provide financial management services may use open-bank data to offer a wealth of insight into the cash flow and financial wellbeing of an SME.
Many SMEs are already accustomed to sharing data digitally by, for example, uploading their financial information to a cloud-based accounting provider. With the emergence of open APIs, providers can offer SMEs a range of services more efficiently, including overdraft protection, as well as record keeping and expense management.
Adopt a cashless mindset
The increasing popularity of digital payments has also led to more negative consumer sentiment towards cash-only enterprises. Not accepting cards (and other forms of cashless payment) is now having a negative impact on the bottom line for cash-only companies, which lose an average of 8 million customers per year as consumers avoid establishments where they can not pay with a card or by using mobile payment.
Digital and mobile payments allow businesses to be where their customers are. For consumers, this is the most convenient option that can be completed much quicker without having to have physical contact with a person.
Adopting cashless methods implies that many small business owners will need to update their point-of-sale systems to accommodate payments by card and other technologies.
There are plenty of resources, consultation services and other aids for helping SMEs integrate cashless infrastructures. The current pandemic has brought about a sense of urgency, and digital payment adoption is now viewed as more of a necessity. Small businesses must proactively seek out assistance and start shopping for integrated digital payment solutions if they want to stay afloat.
Seek new cross-border payment solutions
Financial institutions are publicising a stream of new products or partnerships to improve user experience across both domestic and international payments.
One common factor is true, the traditional system fails to meet cross-border payment demands and realities, particularly for SMEs. In a market that continues to grow and now stands at more than USD$22 trillion, the challenge is to make international payments more available to businesses and establish a positive trading standard without frontiers.
What enterprises need now is faster data access, transparent transaction times and, more crucially, reasonable fees.
SMEs are demanding essential components not only to enable their businesses to grow, but also to trade more effectively internationally.
By giving small and medium-sized enterprises a one-stop solution, they will be able to focus on growing their business rather than dealing with regulatory issues related to international payments. SMEs are struggling to minimise the impact of currency fluctuations, and maximise their cash flow utilisation. As trading becomes increasingly global, small and medium enterprises should look for quick and straightforward global payment solutions to these problems. These solutions are now readily available if businesses look hard enough.
Manage internal spending and payments wisely
If you run a small business, several internal matters can be dealt with. Re-evaluate non-essential spending. Regarding budget, if you find yourself in a tight spot, you should take a closer look at what you are spending. Specifically, you want to look at your expenses to see whether there is anything that you can put on hold or cut out entirely. For example, if sales are down, it could be an option to reduce your weekly or monthly inventory order. Another possibility may be to drop recurring subscription services. The more that you trim, the more funds you can put back into your cash flow.
Follow up with outstanding payments. It can be frustrating to find yourself short on cash, especially when you have outstanding receivables that you are waiting for. Sending friendly notifications to late-paying customers may make it easier for you to get some cash, but if you are really strapped for time, offering a discount might motivate them to pay more quickly. Just remember to weigh the discount cost against the benefits of getting cash in hand sooner rather than later.
Mobile payments are good for you
The choice that an SME makes today about accepting payments will have a significant impact on its future. Businesses must stop seeing payments simply as the process of receiving money from the customer. With the right approach, payments can do wonders for an SME looking to expand its brand.
Sensible SME owners are now considering how, when and where their customers might make payments, considering the type of tender, the channel and the device as well as the security of payments. Many small and medium-sized enterprises have joined mobile wallet programmes while others invested in developing their own solutions.
Complex checkouts have become the central issue for many retailers, with more than 80 per cent of online shoppers abandoning their carts because of them, and more than half permanently taking business somewhere else. Bespoke solutions are increasingly being requested and a flourishing ecosystem of such providers of solutions has started to emerge to customise payment options for everyone, including SMEs.
Do you find it hard to tackle global payment processing in your business? If the answer is yes, then let’s run through what we have discussed here in a nutshell: store a few months worth of cash reserves for quick action when needed, get more access via Fintechs, update payment methods to accommodate other payment sources, look hard for reliable cross-border payment solutions and cut down on subscriptions or other fees that add up. Boldly take steps to be a conscious SME owner.