Structural Changes Attract Customers, Investors to Fintech
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SMB’s Face Unique Challenges — Fintech Has Solutions
Small and medium sized businesses power the American economy. Firms with fewer than 500 employees employ more than half of the country’s private workforce.
Gartner defines small and medium sized businesses by number of employees and annual revenue. Small businesses are defined as those with 100 or fewer employees with less than $50 million in annual revenue. Medium sized businesses are then described as companies with 100 to 999 employees and with annual revenue between $50 million and $1 billion.
Although small and medium sized businesses are vital to the economy, these companies and their leaders experience many distinct struggles, including ongoing concerns about cash flow. Nearly half of the 2,000 small businesses surveyed indicated they were either concerned or very concerned about their cash flow, according to a study conducted by Mercator.
Clearly, there’s a role for fintech in helping SMBs solve cash flow and other problems. In a recent episode of the B2B CashFlow Conversations Podcast, Finexio founder and CEO Ernest Rolfson interviewed Dion Lisle, founder and partner of Forty Grand, a consulting company that helps community banks leverage the power of technology, about the ways that fintech can assist SMBs.
In Lisle’s experience with community banks, which the U.S. Federal Reserve Board defines as those with assets of less than $10 billion, these entities are interested in technology for the benefits it can provide for their customers. “In contrast to the big banks, community banks will say our customers need this or our customers asked us about that, or we need to deliver this to our customers,” he said. “They are much more about service, about believing that their reputation matters and their customers matter.”
“When talking about the big boys, the top five biggest banks, I think most people would agree that they care less about customers and more about what type of commodity they can push out there,” Rolfson observed.
“It’s all about quarterly results, right?” Lisle agreed.
Given Finexio’s and Forty Grand’s focus, Rolfson wondered how fintech solutions in areas such as AP automation, B2B payments, treasury cash flow and working capital management could benefit SMBs.
Lisle mentioned that he was speaking to a community banker about increasing efficiencies through technology and that banker mentioned how helpful it would be if there was technology available so that he could pull his SMB customer’s QuickBooks accounting records, analyze it and make recommendations for the future.
“I told him that was definitely doable,” he said. “But when you’re used to going out with a notebook, taking notes, coming back to the office, analyzing it and then making recommendations, that would be a big change. Imagine if you could do that with say an electrician’s business and go back to him and tell him that from analyzing his business it looks like he’s going to need a new truck. Then, you could offer him a working capital loan to buy that truck. The guy I was talking with was like, ‘What? We could do that?’ I told them that’s basic stuff, it wouldn’t even be that hard. And they were blown away.”
“I think that education is definitely needed so that small and medium sized businesses like your community banks understand that digital tools enable richer personal interactions and actual, more meaningful customer engagement,” Rolfson said in response. “On the predictive side, leveraging trends and analytics is not that complicated — you don’t need AI or machine learning to get to the core of what a $10 million business needs.”
For community banks and other types of SMBs, Lisle recommends starting with data hygiene, data structure, data strategy and data schema to get executives and managers to understand what data is available and what it means. Then, the SMB can proceed into gap analysis, a process audit followed by data strategy. Once those things are in place, the table is set to make other moves that will help customer engagement and drive success for the business and their customers.
Rolfson agreed, noting that in the middle market and the small business market, big banks haven’t delivered for those customers. An SMB CFO who needs help in financial services is more likely to get on Google to try to find help with software or accounting or accounts payable instead of going to a big bank. With these trends, both Rolfson and Lisle agreed that banks, especially large banks, are at more risk than ever of being disintermediated from their customers, especially SMBs.
Learn more about how fintech can improve cash flow for SMB’s. Read our latest report, “Evolving Supplier Payments into an Engine for BusinessGrowth”.
Catch the full episode of “B2B Cashflow Conversations” with guest Dion Lisle below.
- “How Small Business Drives U.S. Economy,” ThoughtCo., July 26, 2021, https://www.thoughtco.com/how-small-business-drives-economy-3321945
- Small and Midsize Businesses (SMB), Gartner Group, https://www.gartner.com/en/information-technology/glossary/smbs-small-and-midsize-businesses
- “Report: Small and Medium Businesses (SMBs) Are Concerned About Cash Flow,” Payments Journal, March 11, 2021, https://www.paymentsjournal.com/report-small-and-medium-businesses-smbs-are-concerned-about-cash-flow/
- “Community & Regional Financial Institutions,” U.S. Federal Reserve Board, Sept. 15, 2021, https://www.federalreserve.gov/supervisionreg/community-and-regional-financial-institutions.htm
Five “Secrets” Every CFO Should Know
Accounts payable has traditionally been an integral part of the business, providing a necessary function in the financial cycle. However, it is now being recognized as not just a cost center but also an opportunity to grow profits and scale your business.
In order to achieve business growth, it’s important for CFOs to focus on finding and funding solutions that will drive long-term growth. To help you understand how your AP department can lead your company to better cash flow management and drive more value, we’re revealing five “secrets” all CFOs should know.
“Secret” #1: Leverage Technology to your Advantage
Technology has revolutionized the accounts payable process, making it faster and more efficient. Automated invoice management systems can help you quickly identify and pay invoices, while supplier payment portals allow you to make payments online without having to go through a middleman. Streamlining these processes will not only free up to 84% of your AP staff’s time, but you’ll reduce costs by eliminating manual, paper-based payment processes.
“Secret” #2: Partner with suppliers to make payments faster and more convenient.
This will improve supplier relations while freeing up cash and reducing the time it takes for funds to be received. Suppliers are motivated to get their money faster and more conveniently, so it’s a great place to start. Suppliers want a say in how they get paid and will adopt a solution that provides a payment method that is fast and easy for them. As an added benefit, you can drive value back to your business with early payment discounts and cash-back benefits from rebates and incentives.
“Secret” #3: Forecast Cash Flow and Allocate Resources Accordingly
In order to make sound decisions about where to allocate its resources, a company needs to have an accurate view of its current and future cash flow position. Accounts payable can help the broader business by forecasting cash flow and providing insights into how different decisions will impact the company’s financial position.
“Secret” #4: Control Costs by Implementing Supplier Payment Best Practices
Best practices for supplier payments can help a business save money on administrative and processing costs. This includes negotiating better payment terms with suppliers, taking advantage of discounts for early payment, and using electronic payments whenever possible.
“Secret” #5: Focus on Cash Flow, Not Just Efficiencies
Cash flow is one of the most important drivers for business growth. Accounts payable can lead the way by expanding its responsibility and becoming better stewards of cash flow for their company. That starts with rethinking how paying suppliers can maximize revenue while cutting costs at every turn.
Hopefully these secrets have provided some insight into why your AP department should be focused on driving long-term sustainable revenue growth, not just controlling expenses more efficiently.
Want to learn more? We’ve got you covered! Check out our latest webinar on-demand to learn more about turning your AP department into a value driver for your business.
Payments Mythbusters: Thanksgiving Edition
Myth: Turkey's can't fly.
Fact: Sure they can! They’re just not great at it.
It’s the same with checks and ACH. Can these payment methods get the job done? Of course. There’s just a better way.
Not long ago, the traditional payments establishment and many merchants were downright skeptical about the ability of digitization to streamline and simplify B2B payments. While digital payments have had a transformational impact on the B2B payments landscape, misconceptions linger.
“There definitely remains a knowledge gap with those who perceive payments using ACH or checks as being less costly than digital models,” said Dean Leavitt, CEO & Founder of Boost Payments. “The misperception is that ACH and checks are free, but credit cards cost a lot,” he said.
Finexio aims to stuff that knowledge gap and shed light on truths that will improve your payment process and your bottom line with our series, Payments Mythbusters. In this Thanksgiving-themed edition, let’s set the record straight around digital and card payments vs checks and ACH (the turkeys of the B2B payments world).
Myth: Digital payments carry a high barrier to entry
Fact: Digital payments actually offer improved cash flow and efficiencies related to third-party processors you can hire like Boost and Finexio. One example of this reality, according to Leavitt, is the boom in digital B2B usage during the pandemic. “There’s been lots of businesses going into digital payments driven by the pandemic. People tend not to go back to checks and less efficient payment methods, once they’re hooked on the benefits of digital payments and specifically card products where they are getting that working capital.”
Digital payments allows companies to fill in gaps and continue moving their capital in the right direction, despite shortages of in-person time and interaction to process ACH and checks. Finexio has a dedicated onboarding and customer success team that shortens onboarding times and eliminates implementation and training headaches, allowing companies to focus on doing their business instead of shuffling paper and waiting for payments to clear.
Myth: Digital payments lack ROI
Fact: Finexio cuts costs associated with manual paper-based processes and the opportunity for cash back via early payment discounts and virtual card interchange. By streamlining the payment process with digital payment methods, companies can guarantee not only savings but returns through usage rewards. In addition, the security offered by digital payments will actually create the potential for transaction volume to increase. “Someone is willing to pay that fee instead of just getting a piece of paper sent to them”, Leavitt said, adding, “I see the fees associated with B2B transactions coming down significantly.”
This positions digital and commercial cards as the future of B2B payments, because as more transactions are happening, the price for executing the payments will actually decrease, resulting in an increasingly favorable environment for even more digital transactions.
Myth: Digital payments require expensive technology
Despite the beliefs of organizations and merchants that digital payments mean they have to acquire expensive technology, FinTech companies like Finexio and Boost build the technology capabilities in their back offices so that organizations and merchants can benefit from automation and technology without having to acquire or maintain it.
“The concept of embedded finance with software-enabled platforms that leads distribution for payments products, services and cash management tools, creates a powerful environment for B2B digital payments,” noted Finexio CEO & Founder, Ernest Rolfson. Because large financial institutions can afford to wait on ACH and checks due to their internal funds, they have no motivation to create the next generation of efficiencies.
“Fintech companies can move much quicker in terms of accommodating the needs of the marketplace,” Leavitt said. “You know, the large financial institutions, even the very best of them, the smartest of them, they just can’t move as quickly as a fintech can. And that’s a huge advantage in the marketplace.”
Myth: Digital Payments are Inefficient
This myth is particularly egregious, because, “Digital payments not only [extends] the working capital, the days payable outstanding for the buyer, but they reduce the days sales outstanding for the supplier, thereby increasing their working capital. That’s really the perfect win”, according to Leavitt. By using digital payment methods, companies can quite literally capitalize on new, frictionless efficiencies and keep themselves agile in a developing space, instead of waiting around for ACH and paper checks, and exposing themselves to fraud.
If you’ve bought into any of these myths, hopefully we’ve convinced you to toss them in the trash along with that turkey carcass.
Speaking of that bird….
Myth: Those plastic pop-up thermometers tell you when your turkey is cooked.
Fact: They let you know when the turkey is overcooked.
From all of us at Finexio, have a safe and happy Thanksgiving!
Do you have a payments-related myth you want busted? Tell us about it on Twitter — @finexiopayments #paymentsmythbusters.
Learn more about Finexio and how digitizing accounts payable can be an easy win. Contact our team for a consultation.
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