By Marcus Patel
In the ever-evolving landscape of small business operations, two perennial challenges continue to plague entrepreneurs: managing cash flow and finding time for strategic growth. Recent studies show that 82% of small businesses fail due to cash flow problems, highlighting the critical nature of this issue. As technology advances, new solutions are emerging to address these age-old problems.
The late payment epidemic
Late payments have become an epidemic in the small business world. According to a 2023 report by the National Federation of Independent Business, 64% of small business owners experience late payments, with an average delay of 21 days beyond agreed terms. This delay can have cascading effects, from inability to pay suppliers to stunted growth and, in extreme cases, business closure.
The hidden cost of invoice management
Beyond the direct impact of late payments, the time spent managing invoices and chasing payments represents a significant hidden cost for small businesses. A survey by Sage found that small business owners spend an average of 120 working days per year on administrative tasks, with financial management taking up a large portion of this time.
Technological solutions on the horizon
As these challenges persist, tech startups are stepping up to offer solutions. One such company is Accru, a payment platform designed to address the twin issues of late payments and time-consuming financial management. To understand more about how technology is being leveraged to solve these problems, we spoke with Justin Fortier, the founder of Accru.
Q1: How are new technologies helping small businesses get paid faster?
Developments in alternative payment methods that bypass traditional credit channels have leveraged new technologies, allowing small business clients to manage various cash flow scenarios while ensuring timely payments. Automated reminder integrations are also helping small businesses collect payments sooner and resolve past-due collections more efficiently.
An example is Accru, an app currently in closed beta, which integrates these solutions and offers a game-changing statement view. This feature provides clients with a comprehensive picture of their accounts, helping them understand and resolve their payments to small businesses more effectively.
Q2: Can you explain the concept of Days Sales Outstanding (DSO) and how technology is impacting it?
Days Sales Outstanding (DSO) is a financial metric that measures the average number of days it takes for a company to collect payment after a sale. It is an important indicator of a company’s liquidity and efficiency in managing its accounts receivable. As we’ve already mentioned, new technologies like Accru are accelerating the impact on decreasing the DSO and increasing small businesses’ operational efficiency.
Q3: What role does automation play in reducing the time spent on financial management tasks?
Automation plays a crucial role in reducing the time spent on financial management tasks by streamlining processes, minimizing errors, and enhancing efficiency. Taking time-consuming tasks such as reminders and processing allows small businesses to be more flexible and creative and ultimately do the thing they do best: provide great services for their customers.
Q4: How do you see the future of small business finance evolving with these technological advancements?
The future of small business finance will be dramatically reshaped by automation, placing human expertise at the heart of strategic decision-making. Small business owners can focus on growth and innovation by automating routine tasks like invoicing, payment processing, and customer relationship management.
Generative AI will be pivotal in analyzing vast datasets to predict sales trends, optimize pricing, and identify potential risks. This data-driven approach will empower businesses to make more informed decisions, improve cash flow, and reduce bad debt.
While challenges such as data privacy and cybersecurity must be addressed, the potential benefits are immense. Through the strategic integration of technology, we can anticipate a future where small businesses have easier access to capital, more efficient operations, and greater financial resilience.
The broader impact on small business ecosystems
The potential impact of these technological solutions extends beyond individual businesses. Faster payments and reduced administrative burdens could lead to a more dynamic and resilient small business ecosystem. A study by the World Economic Forum suggests that improving cash flow management for small businesses could unlock up to $3.7 trillion in global economic value.
Challenges and considerations
While these technological solutions offer promise, it’s important to note that they are not a panacea. Adoption rates, integration with existing systems, and the learning curve associated with new technologies remain challenges. Additionally, the human element of business relationships cannot be entirely replaced by automation.
Looking ahead
As small businesses continue to form the backbone of economies worldwide, the need for efficient financial management solutions remains critical. The emergence of technologies aimed at streamlining payments and reducing administrative burdens represents a significant step forward. However, as with any technological advancement, their true impact will only be realized through widespread adoption and continued innovation.
For small business owners navigating these changes, staying informed about new solutions while carefully considering their specific needs will be key to successfully managing the delicate balance of cash flow and time management in the digital age.
About the author
Marcus Patel has experience in equities research with 2+ years of experience in investment firms. Starting 2017 he deep down into the cryptocurrency market and helped 6+ projects with content marketing and communications. True fan and early investor of Dogecoin, Shiba Inu and Monero.