Small Business Cash Flow Challenges and The Impact on Their Banking Relationship

Less than half (47%) of U.S. based small businesses believe their primary financial institution understands their needs. The result is high attrition with 14% stating they will definitely switch banking institutions in the next two to three years and an additional 36% saying they might.

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A small business owner's ability to get paid faster is critical in order to maintain and grow the business. According to a U.S. Bank study, a whopping 82% of businesses that failed cited cash flow problems as a factor in their failure. The average small business only has enough cash flow to cover 3-4 weeks of expenses and many struggle with past-due invoices -- some beyond 30 days.

While the majority of small businesses are going beyond their bank to a nonbank provider like PayPal or Quickbooks to meet at least one financial need, many see great value in having their financial institution offer them tools to more effectively and quickly collect on outstanding receivables.

Small businesses believe financial institutions have an advantage in areas such as payments processing when it comes to the ability to meet needs in a single location and in a secure environment. Small businesses also state that it would be beneficial to have a single user interface for all major aspects of their business' money management such as online banking, payments, electronic invoicing and payroll.

However, a new report by the Aite Group found that less than 10% of U.S. banks offer these tools to their small business customers. The lack of available tools has led most small businesses to become dependent on manual processes and applications, such as spreadsheets, bank statements and pen and paper to manage cash flow.

Unlike consumers, businesses have the added complexity of customers that must be invoiced for products and services. Invoicing capabilities have traditionally only been available to larger businesses at price points and levels of complexity not suited for smaller companies. Those that have small business offerings are primarily the largest institutions, making it difficult for regional banks and credit unions to remain competitive.

In order for financial institutions to both better understand and better serve the needs of small businesses, we recommend the following:

Offer and all-in-one solution

Remove the chaos of using multiple solutions by providing an all-in-one solution.  Small businesses are crunched for time and need efficiency.  Providing a single solution to send invoices, get paid online, and track payments directly within online and mobile banking eliminates the management of multiple applications, saving the small business owner time. 

Keep it Simple

In addition to saving the small business owner time, providing an all-in-one solution makes it simpler for them as well. Add to that automated accounting that was built for the small business owner, and not an accountant, and a business owner now has one central place to manage their business. Reducing the need for managing multiple systems by providing one single view of money going out, and financial reporting makes it simpler for the small business to understand their cash flow. 

Offer better digital and personal experience

Business owners want the convenience of digital services, but continue to rely upon personal service from time to time. Being able to offer both differentiates financial institutions from non-bank providers. Many small businesses are comfortable online and will not need a helping hand, others may require consultation. Supporting both will enable your financial institution to stand out from all competition, both bank and non-bank.

Leverage the trusted relationship

When it comes to payment processing, small businesses prefer financial institutions over non-bank providers. In many cases they have tried payment services from a non-bank provider, but bad experiences with funds being held or bad customer service have forces them to disengage. They recognize the need to accept online payments, but are waiting for their financial institution to offer a simple, secure solution. 

Choose Autobooks Product Suite to Manage Cash Flow

Small Business Owners are shopping for and switching to Autobooks because of struggles related to getting paid. They're sticking around because we automate bookkeeping tasks, simplify the reporting that they need, and take the pain out of payroll.

Download the Aite Report

Learn the strategies that your financial institution needs to solve small business cash flow challenges and stay ahead of the competition in this new white paper by the Aite Group. 


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