Small to medium-sized businesses are the lifeblood of the British economy. Their success depends on strong cash flow management - something which, even before Covid-19, proved a recurring challenge to many of these hard working businesses.
At the end of 2019, it was anticipated that 20% of small businesses were failing to reach their 1st year anniversary, growing to a failure rate of 50% by year 5 (SBA).
82% of these businesses attribute their failure to a lack of cash flow.
Now, as the impact of the pandemic starts to really take its toll on the UK’s 5.8m SMEs, we must sit up and take notice of the key pain points that are affecting the viability and continuation of this hugely important sector.
The SME landscape faces issues directly linked with our desire to use contactless, fast simple ways to buy products.
Let’s take a closer look at the situation:
£11k is the average debt an SME is chasing, with 39 days the average debtor time (the average time to get paid)
It takes 74% longer to process a manual invoice than a digital one
37% of people have less than £10 in their pocket
Contactless payments grew by 30% in 2019
42% of UK smartphone users use online banking, and grew 30% over the last 12 months
Match these statistics up and you have a problem waiting to be solved.
Solving the small business cash flow puzzle
There’s no denying the challenges that the SME community are facing in the current climate. The costs and charges that they have to pay large institutions to manage their business are over-inflated - not because the institutions are doing this out of malice or lack of intent, it’s just the way it’s always been done.
Investment on infrastructure and integrations is far behind the curve, and the traditional methods for making payments are a classic example of this. Many small businesses still rely on long, drawn-out, old fashioned systems which inevitably cause delays. The strain that such outdated payment processes put on an SME’s cash flow threatens their ability to operate on a business-as-usual basis, let alone their ability to grow and expand.
Enter fintech
In an age where increasing attention is given to how we share our data, why are small businesses still reliant on providing invoices with bank details?
More to the point, why do we still expect consumers to spend valuable time connecting to their bank and setting up the payment process, sometimes requiring 2 to 3 phone-calls just to get the right details to make a payment? Surely there is another, more friction-less way in this digital, almost cashless age without needing to revert to expensive card payments?
For the large portion of SME owners who want to move money to pay bills from different accounts in one place, Open Banking is a boon. Thanks to the implementation of the PSD2 legislation - better known as Open Banking, access to financial data and new payment solutions can offer an alternative to small businesses that are simple, effective, quick and, above all, can reduce costs as business finances and payments are visible, accessible and within their control. No more frustration from hidden costs, infrastructure and red tape.
The result?
An increase in profitability and a welcome improvement to cash flow.
Let’s take a look at an example of how this works in practice.
A window cleaner does a great job and leaves a paper invoice with his new bank account details, asking for payment. The invoice is one of 3 left for the customer to pay, and payment takes 9 days due to mobile ping pong to verify account details and missing information, not to mention repeat access into banking apps, leaving both customer and business owner feeling frustrated.
Alternatively, the same window cleaner could have presented their customer with a QR code for automated, contactless, immediate payment. No old fashioned process, no sharing of confidential data, no chasing, no fuss.
How Open Banking powered QR code payments work
Moneyhub offers a QR code payments solution which allows SMEs to accept payments directly into their accounts. As such, the traditional payment flow process that requires consumers to set up and confirm new details, and businesses to send and chase invoices or accept expensive card payments are bypassed completely.
The solution means their chosen cash account bank details are pre-loaded into the app, with an auto-generated unique invoice number.
All the business owner needs to do to get paid is open the app, enter the invoice value, which generates the QR code, and present this to their customer. All their customer needs to do is scan the QR code with their smartphone (or click on a link via a webpage or email), and follow the instructions to open their banking app with their normal authentication process, to make the payment. The customer approves the payments within their own banking app - no need to give out account numbers, and no need for customers to set up new payees. Safe, secure and quick.
Within just 15 seconds, the payment is complete.
Since it’s made directly to account, cash flow is improved as cash is transferred immediately, and profitability is instantly increased as it’s up to 85% cheaper than traditional payments flows. With less time spent chasing invoices, productivity is positively impacted, allowing owners the headspace to focus on developing their business.
What’s more, this cheaper, simpler payments solution from Moneyhub, complete with the categorisation of invoices, could also solve the problem for the 50% of SMEs that don’t employ an accountant, making completion of HMRC tax returns easier.
Our mission
At Moneyhub, we are dedicated to supporting our UK SME community. That’s why we have developed a digital QR process that enables the SME to get paid on the job before they leave, or on the order.
Secure, safe, simple and quick via payment initiation service (PIS), the Moneyhub payment solution will help the window cleaner, the beauty therapist, the builder and the rest of the SME community to have greater control on their cash flow. And with a single lens on all their finances and PSD2 Open Banking Payment Initiation Services, SMEs can spend less time chasing payments and more time doing what they love, for longer.
Author
Suzanne Homewood
Suzanne is an energised Sales Director and NED, with a considerable history of leading business transformation and commercial growth within telecoms and consumer electronics. She is passionate about helping businesses adapt and change by using technology and data to engage its customers, and its employees, for collective improved outcomes.