Small- to medium-sized businesses (SMBs) often find themselves in a constant struggle to manage cash flow, focusing more on survival than growth.
Many SMBs use outdated cash management practices, which leads to mounting pressures from delayed payments and inefficient processes.
The PYMNTS Intelligence report “From Cash Flow Pain to Working Capital Gain: Automated AR/AP Solutions for SMBs” found that the rise of digital automation offers a path to stability and expansion.
For many SMBs, limited cash reserves force a focus on immediate survival rather than long-term growth. Seventy percent of these businesses hold less than four months’ worth of cash reserves, leaving them vulnerable to operational disruptions. With more than 90% of their revenue consumed by operational costs, small business owners are often left juggling a fragile cash flow that threatens their stability.
The reality is harsh, as 45% of U.S. small business owners forego their own paychecks due to cash flow shortages, while 22% struggle to cover basic bills, putting nearly 1 in 5 at risk of closure.
The situation underscores the need for SMBs to rethink their cash flow strategies. According to the report, 45% of global CEOs acknowledge the necessity of re-evaluating business models to optimize cash flow management. The pressure is even greater on smaller firms, with 56% of CEOs from companies earning less than $100 million fearing for their future viability without changes.
Delayed payments exacerbate the financial strain on small businesses, disrupting cash flow and increasing anxiety about their continued viability. In the United Kingdom, small businesses are burdened with 7.4 billion pounds (about $9.7 billion) in overdue invoices, which costs them an estimated 1.6 billion pounds (about $2.1 billion) annually — a figure that has doubled since 2021.
The situation is particularly dire in the construction sector, where 72% of subcontractors waited over 30 days for payment in 2023, up from 49% the previous year. This delay cost the sector an estimated $273 billion, or 14% of overall construction costs.
The heavy-construction equipment rental market faces even more severe delays, with 9% of operators experiencing waits exceeding 90 days. This pattern highlights the need for modernized payment solutions to address the inefficiencies and financial strain caused by prolonged payment periods.
Outdated manual processes for managing accounts payable (AP) and accounts receivable (AR) are a source of cash flow issues for SMBs, with 37% of chief financial officers and half of senior finance leaders viewing their financial data as unreliable due to these inefficiencies. Despite concerns about cost and complexity, automating AP and AR offers benefits.
According to the report, fully automated systems improve cash flow management and operational efficiency, with 95% of firms reporting more accurate processes and 84% seeing increased savings and growth. Additionally, consolidating multiple cash flow tools onto a single platform can save SMBs up to 20 hours a week.
To turn cash flow challenges into opportunities, SMBs should consider adopting digital solutions and collaborating with FinTech providers. Automation can optimize working capital management by predicting optimal times for AP and AR processes and encouraging shorter payment cycles. By unifying cash management tools and using technology, SMBs can streamline operations and promote growth, moving from financial instability to a more prosperous future.
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