While the U.S. economy was projected to expand at its fastest pace since the 1980s, the nation is entering a period of increased uncertainty as supply chain bottlenecks and inflationary pressures threaten the financial well-being of businesses. For smaller companies, in particular, confidence is slipping month after month as employers navigate unfilled positions and inventory shortages.
This drop in confidence is not surprising. After experiencing pandemic-related losses, approximately 44% of U.S. small businesses are operating on less than three months of cash reserves. Facing financial challenge after challenge, small businesses cannot catch a break—with no sign of relief in sight.
But as experts warn that supply chain issues are “here to stay” and inflation reaching a four-decade high in January, there are steps mom and pop shops can take to ensure that they survive this period of financial uncertainty. And an important step is to abandon antiquated payment systems.
Unlike larger companies, the majority of small business owners still rely on bank bill pay and physical checks, which are both drastically inefficient, costly, and inflexible in terms of cash flow. As of 2019, checks still accounted for 42% percent of all transactions between businesses. And, while paper checks continue to remain the dominant form of payments, they are on average 10 times more costly to businesses than digital payments—a price tag that quickly adds up for smaller companies.
Delayed and late payments also continue to pose a threat to small business growth, with the smallest of companies often being hit the hardest and forced to essentially subsidize their customers’ activities until they get paid. 70% of microbusinesses—companies with fewer than 10 employees—report waiting between one to six months to get paid, a barrier to budding entrepreneurs around the country.
And these numbers have only gotten worse during the pandemic. As a direct result of late payments, 40% of small business owners have had to delay hiring new employees, while others have halted the purchase of new inventory and drastically reduced employee hours.
Fortunately, smart digital payment tools provide easier, safer, and faster payment delivery choices so businesses and their employees no longer need to hear the dreaded words “the check is in the mail.” Going digital can also help improve cash flow by keeping businesses on top of their finances with better tracking options and payment scheduling capabilities.
Some tools also offer the ability to pay business bills with a credit card, even if the vendor does not typically accept that form of payment. This way, the vendor gets paid immediately—in whatever form they prefer—while the business can delay payment until the card’s next billing cycle.
As a result of Covid-19-induced state lockdowns and restrictions, the adoption of digital payments systems accelerated tremendously, with data showing that in the last two years, a majority of small businesses increased their technology spend. Research also suggests that not only is adoption becoming more widespread, but these payment platforms have proven to be effective. Digital payment platforms have improved cash flow for an overwhelming 73% of organizations and reduced manual administration work by 68%.
Additionally, for small businesses like New York-based Martin’s Handmade Pretzels, digital payment solutions have proven instrumental to streamlining operations and saving valuable time. In fact, owner and manager Josiah Martin estimates that Melio has reduced the amount of time he spends on administrative work by half, allowing him to spend more energy on growing the business. After the bakery and headquarters burned to the ground last year, he needed to devote most of his time to getting the company back on its feet—and Melio gave him one less item to worry about.
Just like the transition to email and social media, some businesses may be hesitant at first to adopt an unfamiliar technology, especially if paper checks are all that they know. But now more than ever, mom and pop shops must adopt the lessons learned from the pandemic and embrace digital payment solutions. With the help of digital payment platforms, small businesses can spend more time serving customers and less time invoicing—allowing their business to thrive even in the face of unprecedented challenges.
This article originally appeared in PaymentsJournal.