Powering small businesses to weather the storm

The coronavirus pandemic is having a huge impact on how we all live our lives – whether that’s how we work, how we shop, or how we communicate with our loved ones. But it is also having a major impact on the small businesses that are central to our society and our economy, many of whom have had to temporarily close operations and facilities recently.

Around the world, small businesses represent 90 percent of all businesses, employ roughly 70 percent of all workers globally and deliver more than half of GDP.[1] Their significance in supporting global economic growth as we come out of this crisis cannot be underestimated. At Mastercard we believe that investing in the success of small businesses is an effective way to drive inclusive economic growth in communities. This includes offering innovative products that address the challenges they face, such as providing digital payment acceptance, instant access to sales proceeds, and protecting them against fraud.

The role of technology

Over recent weeks and months we’ve seen hundreds of thousands of businesses being forced to adapt in order to survive the impact of coronavirus – whether that’s shifting to online sales, developing remote and delivery-based models or reimagining customer bases.

At the same time, it’s important that governments, regulators and the technology and financial services industries continue to support new innovation that addresses fundamental small business pain points being felt even more acutely at present. This includes dealing with immediate cyber security threats as fraudsters try to capitalise on the chaos; access to working capital as consumers move to contactless payments over cash; overcoming legacy supplier working practices that previously were not digitised; and – above all – cash flow.

Lack of cash flow, in particular, can have a downstream impact on a small businesses’ survival – particularly in a crisis. And with small businesses needing to play a crucial part in the economic recovery after the coronavirus pandemic, it’s vital to ensure solutions to this problem are readily available to them.

Cash flow challenges

Research shows that in a ‘normal’ environment, 57 percent of small businesses frequently borrow money to cover business expenses within the first five years. In addition, small businesses tend to have fewer liquid assets to provide them with a buffer if things go wrong – having only enough cash to last 27 days, on average[2] – which means they do the business equivalent of living paycheque to paycheque. If they’re forced to close or experience a downturn in earnings one month, the effect is felt immediately as their expenses don’t really change; their landlords are still demanding rent at the same rate as they did previously.

This means their recovery depends on being able to access their earnings sooner to pay bills or payoff the debts they incurred during the crisis. The speed at which governments have worked to introduce interest-free and flexible loans, in addition to funding via grants for small business owners in this crisis underlines their recognition of small businesses’ need for immediately available cash.

It’s therefore no wonder that 69 percent of small businesses are interested in real-time payments that can improve cash flow and certainty.[3] Jenna Hawkins, owner of boutique August Place, said: “Receiving payments quickly means we maintain a healthy cash flow. This has a knock on impact on everyone involved – directly or indirectly – with the business.”

Having fast access to funds is extremely important at a time when traditional methods can take from five to seven days for card payment funds to settle and when fewer customers are paying with cash. Near real-time delivery of sales proceeds significantly improves liquidity and cash flow for merchants and small businesses; and it could be the difference between retaining or furloughing staff. We already work with a number of payment service providers to allow small businesses to receive proceeds in near real-time through Mastercard Send™, providing a better overall settlement experience and helping them to better manage cash flow.

The bigger picture

It’s by no means a silver bullet but having immediate access to funds is crucial for small business needing to weather the storm of these challenging economic times and ensure they can be quick off the blocks when the world reopens.

This is clearly a marathon not a sprint and it’s important that, throughout the journey to recovery, the financial services industry, technology providers, governments and regulators maintain their focus on supporting the small businesses we all rely on. Together we must focus on building pathways to financial security by helping provide small businesses with ways to support their staff, protect their business, and anticipating what they’ll need in the future. We all need small businesses to survive this turbulent time, so they are ready and raring to play their pivotal role in driving the growth the world’s economies need to come out of this crisis.

This article originally appeared in Global Banking and Finance Review in June 2020

[1] WTO, 2016: Levelling the trading field for SMEs
[2] Mastercard (2020) Saving Main Street in the Wake of COVID-19
[3] PYMNTS.com and Mastercard (2018) Real-time Payments Innovation Playbook