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How to optimise cash flow in the crunch of 2020

Just as small businesses are the lifeblood of our economy, cash is the beating heart of every SME. But getting cash flow wrong can have devastating consequences, so how can businesses use the fintech industry to protect themselves and create stability in the most uncertain of times?

Managing cash flow is an age-old issue, and has quite literally been the difference between success and failure for many small businesses. Last year, research from Intuit showed that it was the biggest challenge for SMEs, with over half of small business owners in the UK having experienced problems of this nature.

Late payments appear to be one of the major culprits. Xero and PayPal revealed that over a third of small business owners had considered closing their businesses in 2019 alone due to issues caused by delayed payments, which can hamper business growth, prevent staff from getting paid and create a whole host of other problems.

Unfortunately, there’s been minimal progress made to tackle this challenge in 2020, thanks to the considerable disruption brought about by the COVID-19 pandemic. Recent statistics paint a pretty dismal picture; the Federation for Small Businesses reported that 62% of UK small businesses have been subject to late or frozen payments, and yet the OECD stated that 57% of our SMEs had just three months of cash reserves, or less, during the lockdown.

To add to this, cash usage has plummeted due to the outbreak amid fears of transmission via physical cash. As a fintech, we only work with contactless transactions, but we believe that our transition to a cashless society shouldn’t come at the price of leaving those small businesses who can’t accept card payments behind. It’s our job, both at phos and as a wider fintech industry, to support SMEs in bolstering their cash flow and, therefore, securing their future.

Here are three simple actions that SMEs can take to improve their cash flow immediately:

  1. Ensure that you can accept cashless payments in a way that benefits your business

In short, this means implementing a cost-effective and straightforward method for taking card, contactless, or mobile payments to stop being wholly reliant on cash transactions. SMBs are often hesitant to make this move for legitimate reasons, such as the cost of set-up or long deployment times. But making these changes are now more straightforward - and beneficial - than you might think.

Nowadays, there are several different Point of Sale (POS) solutions available, and which are built explicitly with SMEs in mind. Businesses can quickly get up and running by using a dedicated terminal or dongle, for instance, or avoid the need for additional hardware altogether by opting for software-based POS paytech, which allows anyone with an Android device to start taking payments right away, without the need for any additional devices or technologies.

  1. Make use of systems that can show you exactly how much cash you have at the click of a button

There are a plethora of tools and analytics available that can profile your unique cash characteristics. These can make a huge difference as they don’t only free up the existing resource needed to understand how much cash you had in your business and where it was sitting, but they can also create accurate and real-time forecasts.

This not only has a hugely positive impact on the management of your existing cash, but also allows you to plan, and define some form of certainty during such a volatile period. Integrated analytics lean on the collaboration between banks, fintechs, and software companies, who utilise application programming interfaces (APIs) to connect their separate data sets and provide you with a holistic view of your cash flow.

  1. Reduce your settlement times to get a better handle on cash flow

I often wonder why lengthy settlement times are still such an issue for small businesses when the technology exists to solve this problem for good. Many SMBs are still waiting up to five days to receive the cash from a sale on card, which seems all the slower compared to the instantaneous nature the rest of the world seems to run by.

By using a card provider that integrates with a POS vendor, or vice versa, traders can see their settlement times significantly decrease practically overnight. This can work wonders for cash flow management by bridging the gap between making a sale and having the funds available to spend.

Helping to dodge the cash crunch

Fintechs should be working to directly support small businesses better handle their cash flow as they strive to recover, or hopefully, grow. SMBs must act upon the trends that consumers drive and move away from having cash payments as their sole method of accepting funds, but not being disadvantaged in doing so.

This year, late payment sums rose by 80%, to represent £23.4bn in our economy. The fintech industry can play its part in tackling this by making accepting cashless payments easier, speeding up the time to settlement, and providing the power of analytics to make managing cash flow easier.

By doing this, we’re hoping that our SMEs can approach the future with confidence.