Real-Time Payments Revolutionize Small Business Cash Flow Management
Small and medium-sized businesses (SMBs) have faced numerous challenges in recent years, including a post-pandemic recovery, rising inflation, increasing interest rates, and geopolitical uncertainties, according to PYMNTS. Amid these obstacles, cash flow management remains crucial for SMBs aiming not only to survive but also to thrive in the current economic landscape. However, legacy payment methods with their inherent delays can hinder proactive and strategic access to working capital, making it difficult for SMBs to accurately assess their financial positions.
Drew Edwards, the founder and CEO of Ingo Money, highlighted the limitations of legacy systems, stating, «Legacy systems are slow, for starters, and batch-based, so they tend to favor predetermined transactions like payroll or recurring bill pay, which leaves out a lot of ad hoc and other on-demand use cases where real-time money movement is critical.» Edwards emphasized that the world we live in today moves at a much faster pace than the legacy systems can support.
The lack of real-time visibility into their account balances can have severe consequences for small businesses. Edwards provided an example of a restaurant using Automated Clearing House (ACH) to draw down loans, explaining, «A restaurant, for example, that’s using ACH to do drawdowns on its loans has to think through the whole weekend by Thursday so they could put in requests for their money then and hopefully get it on the following day, Friday. And if they got that wrong and needed more cash over the weekend, they were between a rock and a hard place because it would be too late to draw down more before Tuesday.»
Fortunately, Edwards noted that real-time payments present a promising solution for SMBs historically underserved by legacy payment processes. The advent of on-demand transfers powered by the Real Time Payments (RTP) system offers a game-changing opportunity. Enabling 24/7 availability of funds, real-time payments significantly improve SMBs’ daily cash flow, granting them greater financial control and flexibility.
By accelerating payments through the RTP network, financial uncertainty is eliminated. SMBs gain access to liquidity on demand, allowing them to manage unexpected expenses, make timely payments to vendors, and avoid potential financial setbacks. Edwards emphasized, «If they realize they’re short on some supply, then they can click a button and get needed cash a minute later — it’s in their bank account, and they can go and buy what they need. It helps alleviate one of the number one challenges to running a small business, cash crunches.»
Real-time payments empower SMBs to make timely purchases, ensuring operational continuity and enhancing customer satisfaction. They also offer the flexibility to seize opportunities, respond to market demands, and adapt promptly to changing business circumstances.
The widespread adoption of real-time payments among SMBs, however, depends on the readiness of their banks to implement faster payment solutions. Edwards clarified, «If an SMB is banking with somebody that doesn’t offer RTP, that’s what’s holding up the adoption, not the SMB choosing not to use RTP.» The responsibility lies with banks to provide real-time payment capabilities, and if they have not implemented such systems, SMBs are unable to benefit from the advantages.
To overcome this challenge, FinTech companies can play a crucial role in educating SMBs about the benefits of real-time payments and assisting them in navigating the transition. This can expedite the elimination of delays associated with legacy payment methods, ultimately enhancing SMBs’ daily cash flows and improving their financial operations.
As the payment landscape evolves, embracing real-time payments becomes a game-changer for SMBs, offering them a competitive advantage in today’s fast-paced business environment and paving the way for a faster and more efficient future. Edwards expressed hope for the widespread adoption of real-time payments, stating, «My hope is that RTP, FedNow, push to card, and any other fast rails that come along can get up and running at scale because that creates truly great customer experiences where there’s always a way to get the transaction done. And when you’re dealing with getting somebody their money or getting a small business their money, that’s critical.»
Real-time payments have the potential to revolutionize cash flow management for small businesses. By offering instant access to funds and eliminating delays, SMBs can better navigate financial uncertainties, make timely payments, and seize opportunities in a fast-paced business environment. The readiness of banks to implement real-time payment solutions and the role of FinTechs in educating SMBs are crucial factors in achieving widespread adoption. As the payment landscape evolves, embracing real-time payments becomes essential for SMBs, allowing them to build a more efficient and competitive future.