Accounting & Finance

To improve cash flow, more small business owners are adopting digital payments during the pandemic

  • 4 min Read
  • August 11, 2021

Author

Escalon

Table of Contents

In a recent surveyreleased by Wave, an H&R Block company, 17% of microbusiness owners have sent out invoices that were never paid. For these microbusinesses, companies with fewer than nine employees, the backlog of unpaid invoices can be crippling. Nearly 30% of these business owners have had to borrow from their own personal funds to cover business costs, and nearly 20% have been forced to shrink or forgo their own paycheck just to cover the loss of payments. 

The pandemic’s impact on delayed invoice payments

The pandemic has made receiving invoice payments on time even more difficult for many of these microbusinesses. Particularly, fear of COVID transmission has hurt the 70% of microbusinesses that rely on paper checks or cash as their main form of payment. Because cash and paper checks often require the two parties to be in close contact, many customers are reluctant to meet and make their payment.

Service-based businesses, where payment is usually requested after service has been rendered, are at a higher risk of holding unpaid invoices. Common customer nonpayment excuses include claiming to forget their invoice was due, that they lost the invoice, or that they simply couldn’t afford to make the payment. Regardless of the reason, business owners who are unable to follow up on every outstanding invoice risk significant loss of income when they invoice after services are rendered.

Cash flow concerns slow down many micro and small businesses

The biggest consequence of the rise in late payments due to the pandemic is how it cramps cash flow for these fragile businesses. About 45% of business owners in the Wave survey report cash flow being a major challenge for their business. When these businesses don’t receive timely payment, not only are they unable to cover the cost of materials and overhead that went into the sold product or service, but they also can’t secure materials or labor for their next sale. Sluggish cash flow can quickly shutter a microbusiness. 

Accepting digital payments offers a major layer of protection

If you’re a microbusiness or small business owner, how can you protect yourself from this kind of significant revenue loss? Accepting digital payments can go a long way in securing payment faster and reducing physical contact. Plus, as of 2021, 4 out of 5 consumers expect to be given a digital or contactless payment option. Businesses that are equipped to accept nontraditional payments will continue to have an advantage among consumers.

Digital payment options like Venmo, PayPal, Apple Pay, Square, Stripe, QuickBooks and others are on the rise . In a report by the National Retail Federation, contactless payment options like these have increased in popularity by nearly 70% since January 2020. And these contactless and digital payment options come with numerous benefits, including quicker payment and safer transactions. 

Businesses that offer digital payment options tend to see their invoices paid more quickly, as the customer can pay the invoice online or on their phone instantly. The funds transfer into the business’s account sooner than a traditionally deposited check, which can take up to 14 days to be verified. This allows the business to pay their employees sooner. When a business can pay their suppliers sooner, they may also have the opportunity to negotiate a better deal and save even more upfront costs. 

Digital payment options save time and can save $$$

Without the need to chase invoices, track paper checks and drop off cash deposits to the bank, microbusinesses can save significant time and paperwork. Digital payments increase the likelihood of receiving invoice payments and help protect against human error and cash theft. 

While cash and check deposits are free, digital payments can come with a 1.3% to 3.5% processing fee. For many microbusinesses, the time savings, increased invoice payment rate and market advantage offered by digital payments can offset those costs. As with any major functionality change, business owners considering switching to or adding the option of digital payments should carefully weigh the costs and benefits of adopting a new payment system. But as the pandemic lingers, the rise in digital payments will undoubtedly continue. 

Talk to our team today to learn how Escalon can help take your company to the next level.

  • Expertise you can trust

    Our team is made up of seasoned professionals who bring years of industry experience to the table. You gain a trusted advisor who understands your business inside out.

  • Quality and consistency

    Say goodbye to the hassles of hiring, training and managing in-house finance teams. You will never have to worry about unexpected leave of absence or retraining new employees.

  • Scalability and Flexibility

    Whether you’re a small business or a global powerhouse, our solutions scale with your needs. We eliminate inefficiencies, reduce costs and help you focus on growing your business.

Contact Us Today!

Tap into the latest insights from experts in your industry

Accounting & Finance

The Impact of Accurate Financial Operations on Business Success

Financial operations encompass the systems and processes that govern every monetary aspect of a business—from managing payables and receivables to...

Read More
People Management & HR

The Benefits of Outsourcing Payroll for Small Businesses 

For many small business owners, running payroll is a time-intensive chore that requires meticulous calculation, familiarity with tax codes, and...

Read More
Accounting

Introducing C3: Your All-in-One Financial Management Platform

Managing your business’s finances can often feel like juggling too many tasks at once, especially when you’re trying to keep...

Read More
Accounting & Finance

Tax Planning Strategies to Maximize Small Business Savings

Small business owners often grapple with tax obligations that can swallow a large portion of their profits if not managed...

Read More
People Management & HR

Streamlining HR Processes, Best Practices for Small Business Owners 

Human Resources (HR) might feel like an afterthought for many small business owners juggling day-to-day demands, yet it has a...

Read More
People Management & HR

Leveraging AI for Efficient People Operations

Artificial intelligence (AI) isn’t just for tech giants anymore—it’s increasingly accessible to small and mid-sized businesses seeking a competitive edge...

Read More
Accounting & Finance

How to Set Up Payroll, A Guide for Small Business Owners 

Setting up a payroll system is an essential step that helps small business owners pay their employees accurately and on...

Read More
Accounting & Finance

Financial Planning for the Future, Setting Long-Term Business Goals

While small businesses must handle day-to-day tasks—like managing payroll or closing monthly books—long-term planning is the compass that keeps them...

Read More
People Management & HR

Benefits Administration, What Small Business Need to Know

Benefits administration can be a game-changer for small businesses aiming to attract and retain top talent. While salaries remain an...

Read More