Daniel Groves outlines five key steps SMEs can take to keep their finances secure.

Money problems come in all shapes and sizes, but more often than not the biggest financial issue which can make or break a small business is cash flow. Studies have shown that more than 80% of small businesses fold as a result of poor cash flow. These mistakes are easy to avoid, if you plan for them before they become a problem.

Make sure bills are paid on time

It might sound obvious, but never underestimate how important it is to pay your bills on time. Not only does this mean they won’t go up in cost due to interest charges but missed payments can also affect your credit rating, storing up all manner of issues further down the line. 

Technology is your friend in making bill-paying as frictionless as possible. For regular bills, set up a Direct Debit to save you time and money. If you’re unsure what digital tools your bank has to help you pay your bills, talk to them. It is in their best interest to make sure that you are on top of your funds.

Save for emergencies

In these increasingly uncertain times, it is vital that you put some money aside for unforeseen emergencies. It is in your best interest to have an emergency rainy day fund. Problems will - and do - come up, and often the best way to keep your options open when trouble strikes is to have funds readily available. A good way of doing this with minimal effort is taking 10% of your profit each month and moving it to a separate bank account.

Now is also a prudent time to look at your company's outgoing expenditures and cut back. Instead of travelling for a face-to-face meeting, save time and money (and stay safe) by hosting that meeting online. You can then take those saved expenses and place them in your emergency fund account, away from the money you use for running the day-to-day.

Problems will - and do - come up, and often the best way to keep your options open when trouble strikes is to have funds readily available.

Keep a close eye on payments owed to you

It is very easy when running a small business to get bogged down with the day-to-day operation and not keep track of unpaid customer bills. Sending out an invoice is one thing, but it’s quite another to make sure it has been paid on time and to chase if it hasn’t. There are great tools and software which can automatically send reminders to chase late payments, helping you avoid escalating it to a legal issue. This, in itself, can be a lengthy and expensive process. 

You are running a business, not a charity. So make sure you are paid what you have worked or you won’t be in business for very long. 

Get help if you need it

Staying afloat can be extremely hard for a small business in any industry - asking for help isn’t a sign of weakness. If you’re struggling to chase payments or keep track of them, it’s better that you get help (either from technology or a trusted adviser), so you can focus on creating value for your customers. Financial worries can put real strain on business owners if they don’t have experience trying to manage it. 

 “Whatever you do, please don't do it alone,” says Jeremy Frost of Frost Group, a company specialising in business advice for companies struggling. “It can be a frightening time for you but it is possible to solve business problems, especially cash flow issues. If you concentrate too much on the minute details of a problem you miss the big picture.”

Track your financial statements

It is key that you pay close attention to your financial statements. Carefully follow what is going out and what is coming in. If you don't know how to read a financial statement, you can use online guidance to learn as soon as possible. Alternatively, you could employ someone to read it for you if it’s really not one of your strengths or you want to free up some mental processing power to continue to grow your business. Do this by hiring a freelance account manager, rather than bringing a full-time financial team in-house. 

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Final thoughts

It is better to be in control of your finances at all times so that you can react and solve any problems before they escalate. Every company will have one month where their outgoings surpass their incomings but it is up to you to see it, identify why that has happened and make sure it is not a regular occurrence. Don’t assume these issues will just go away. 

For many years now, an increasing percentage of consumers have transitioned to using debit cards rather than cash. Many projections state that of all global currency, only 8% of it is physical currency, which shows just how prevalent and important the likes of credit and debit cards are to global economies. 

Credit and debit card use is much more widespread than before, with users citing added convenience and time saving as major reasons, yet in 2020, COVID-19 has provided another reason for both customers and businesses to embrace cashless trading. By walking into essentially any store on the high street, you will likely find signs banning every transaction other than contactless payments, which shows that COVID-19 is accelerating society towards this cashless revolution. 

Since the pandemic, many stores have opted for a cashless policy, whilst cash machine withdrawals have fallen by 55%. Due to the uncertainty surrounding COVID-19 and a potential second wave, this trend looks set to continue. Below, Southern Finance's Tom Simpkins explores the pros and cons of a business going cashless during the COVID-19 crisis, as well as what advantages going cashless may have for everyone after COVID-19.

Saving Time and Money

Just as many adhered to the paperless revolution a decade ago, deciding to go completely cashless removes the need for expensive equipment that would have once been considered essential. Shops would have little to no need for tills, nor would the likes of safes be standard when all transactions would be handled electronically.

Deciding to go cashless may save time, money and effort in the long run, especially as it looks like it may be becoming the new standard. After all, the beginning of the UK’s lockdown in March saw the use of physical currency in stores drop by approximately 50%, and with lockdown measures fluctuating, the rest of the country is seeing little reason to return to relying on physical cash.

Deciding to go cashless may save time, money and effort in the long run, especially as it looks like it may be becoming the new standard.

‘Staying ahead of the curve’ is always a wise move, especially if you’re trying to get a one-up over your competition. By embracing the new standard in an ever-growing cashless society, you can adjust to the new challenges that it brings, such as a focus on convenient technology. An example of this would be to invest in contactless payment points, digital tablets, and other equipment that can make life easier for customers and workers in almost any industry, ranging from the restaurant industry to retail.

Increasing Business Efficiency

Cashless transactions aren’t just efficient due to saving time counting out physical currency, it also promotes smoother transactions for businesses in general. By primarily dealing with cashless transactions, businesses will have less stress handling physical currency, such as handling bank deposits or concern over germs. Proof of this latter point was seen in China during the early lockdown efforts, as thousands of banknotes were destroyed from fear of being contaminated.

Certain businesses and industries such as those that specialise in transportation have already seen a boost in efficiency, so much so that it feels like there’s no going back from cashless for them. A prime example of this would be buses, as before COVID-19 there were various pushes to encourage using contactless card payments as opposed to paying in cash, yet now that necessity demands contactless payments this push has become much more important.

As to be expected, cashless transactions are also much more convenient for customers, thanks in no small part to the abundance of digital wallets available. Along with credit and debit cards, most smartphones are capable of being connected to bank accounts and serving as digital cards; the likes of Apple Pay and Google Pay are already immensely popular. By being able to make a payment by placing a phone against a card reader, customers can make everyday transactions quicker than conventional methods, like fishing out a credit card.

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Vulnerabilities with Banking Issues

Of course, no system is perfect, and some raise large concerns with a truly cashless society. From a reluctance to adapt to a cashless society to concerns with banking security, going completely cashless requires plenty of willing participants. While we’ll likely never see a day where physical currency is worthless, many are still confident in its staying power, along with the sense of security that physically holding currency provides.

Resistance to a cashless society isn’t new to the COVID-19 crisis, as the Access to Cash Review once called on the government and lawmakers to stop shops offering cashback, especially when the request was made without making a purchase. This continued push has persisted even to 2020, with the government’s budget in March detailing further protection for those that want reliable access to cash. Just as some don’t wish for a cashless society, many still rely on cash and face-to-face banking.

There’s also the age-old problem of disclosing too much information, as many fear that cashless transactions risk their banking information being stolen. Experts in the financial industry are attempting to address this issue, such as fintechs, who strive to assist electronic payments without the use of bank accounts. The truth is that when using cash, you don’t often grant the opportunity to access your banking details, and even the possibility of that happening is enough to put many people off the notion of a cashless society.

Is the Future Cashless?

While arguments can be made both in favour of and against a truly cashless society, COVID=19 has made it clear that many businesses can either thrive from it or need to go cashless to survive. The amount we rely on cashless transactions, as well as how common they become, may depend on how quickly we can handle and eliminate COVID-19, yet it’s becoming likelier by the day that the pandemic's impact will be long-lasting, if not felt forever. 

Whether this extends to being a completely cashless society or not is yet to be seen, but for now it’s clear that during a pandemic and the lockdown going cashless is a safe move, no matter what industry it’s utilised in.

As a result, they have expect payments to be easy, convenient, flexible, secure – in some cases they even want to be rewarded for making transactions. Below, Abhijit Deb, Head of Banking & Financial Services, UK & Ireland, at Cognizant, explains the ins and outs of card payments and the threats this payment method currently faces.

Customers will not stay loyal to their card providers if the service no longer meets their needs or expectations. As a result, we are entering an age where payment industry providers either have to be the source of transformation or face disruption from competitors challenging their market share. To avoid the latter, card providers should continue to innovate, creating new capabilities and features to bring greater security, added-value services, collaboration and convenience for their clients.

The future credit card

The shift in the payments landscape over the past few years has brought a substantial evolution in the role of payment cards. This transformation has not only impacted the types of cards that companies are launching – for example, Gemalto has developed fingerprint recognition credit cards  – but has also affected card providers’ strategies and aspirations.

But how long will we keep physical cards in our wallet? Will the move to cashless lead us to ultimately become wallet-less?

Payment networks like Visa, MasterCard, Discover and American Express have built a massive infrastructure, also known as ‘payment rails’, for processing transactions globally. As purchasing trends shift online, credit and debit cards are increasingly being used more for their ‘rails’ than for the traditional plastic card we use in-stores. Thus, the battleground for card providers is how to remain the default payment option across every channel, keeping them in the top spot in a spender’s digital wallet.

Apart from the obvious revenue advantages associated with being a preferred payment choice, such as interchange fees and interest charges, card providers with ‘top of the wallet’ status also have access to a rich pool of information. By harnessing data, card companies can provide an innovative and hyper-personalised customer experience to differentiate themselves or create a new stream of revenue, as seen with companies such as Google recently purchasing Mastercard credit card data to track users’ spending.

Evolving competitor landscape

With the incursion of the concept of ‘digital cards’, card issuers and their corresponding business model are under threat, no matter what position they hold in the rank.

With the incursion of the concept of ‘digital cards’, card issuers and their corresponding business model are under threat, no matter what position they hold in the rank.

Card providers have access to increasing amounts of payment and account information, and more assertive competitors are moving quickly to commercialise the opportunities. Online players, like PayPal and Square, are already poised to take a bigger industry lead over traditional credit card issuers thanks to their established online presence.

And, as their dominance grows, we are likely to see other digital players enter the payments space. Amazon, for example, is well known for having a business plan for every industry – and it is likely payments will not be any different. Having just launched a small loans service to SMEs, it is not hard to extend the logic to where Amazon is your bank and runs your entire network by Amazon “rails”. And the same could easily be said for Apple.

We may also see social media players get involved, coupling their user data with account information to provide quick credit checks or banking services.

So, what does this mean for traditional card providers?

Firstly, it is clear that marketing strategy can no longer be centred around a piece of plastic. Marketers must challenge themselves to think about how they can propagate brand loyalty and acquire customers in this changing market. At the moment, a vast amount of customer acquisition is achieved by cross-selling to other customers with partnerships. For example, the British Airways / American Express credit card enables consumers to collect Avios points on their day-to-day transactions.

Firstly, it is clear that marketing strategy can no longer be centred around a piece of plastic.

And how do they compete on the digital landscape? Many providers are racing to position themselves as the customer’s ‘digital front door’ to take advantage of additional account information. Card providers need to act fast to stay relevant.

In the short to mid-term, credit card providers must focus on trust. Currently, thanks to consumer banking regulations, clients have the peace of mind that if a card gets stolen, they are protected. For the time being, Apple Pay and other providers are not offering the same assurances to customers yet. However, when mobile payments start offering the same guarantees, what can card providers do to stop people switching?

In the long term, card players must ensure that they do not find themselves consigned to the role of the faceless underwriter. Card providers need to think about their role in the entire financial services ecosystem and create new, innovative services that respond to customers’ needs. Many forward-looking players are looking to launch offerings such as 360-degree views and financial management advice services.

In the long term, card players must ensure that they do not find themselves consigned to the role of the faceless underwriter.

By combining machine intelligence with data, other providers are already exploring how technology can create new customer and colleague experiences that are simple, fast, transparent and engaging. For example, American Express’ personal travel assistant app, Mezi, uses AI to help cardholders pay for vacations and business trips based on their preferences. Similarly, Bank of America’s virtual AI assistant Erica is helping clients with effective money management.

Only by creating these value-added services that respond to specific consumer needs can card providers avoid complete industry disruption and stay relevant.

The study, which looks at cash and cashless technology usage in four markets—the UK, Australia, Brazil, and South Africa—shows that a cashless society may not be a realistic ambition. In fact, the survey revealed an “immovable” 24% of consumers who will never abandon cash—no matter what technological advance or leap forward is available to them.

In Brazil and South Africa, where cash use is more common, there is a strong desire for wider acceptance of cashless technologies such as payment cards and digital wallets. In both markets, 60% say that they are worried about having cash stolen from them which suggests fear of theft is a key driver rather than convenience.

In the UK and Australia, however, where the use of cashless technologies is more widespread, people are happier with their use of cash. Around 80% of people in both markets say that they are comfortable using cash.

Respondents across all countries saw cash as part of their day-to-day lives. They carry cash at all times, replenishing their wallets and purses regularly at ATMs, and are unwilling to go that last extra mile and never use cash again.

The findings suggest that cashless technologies will not replace cash completely; instead people are happier with an equilibrium between the two.

“While the proliferation of cashless payment technologies has generally led to a reduction in cash usage across developed economies, banknotes have unique properties that consumers value, such as security against fraud,” said Michael Batley, Head of Strategy, Travelex. “As long as this is the case it’s unlikely that any attempts to abandon cash completely will succeed. Even Sweden’s bid to go cashless, touted as a successful model, has seen pushback. Ultimately, only consumer demand will drive the change towards a truly cashless society and our research indicates this is further away than many realise.”

As well as revealing a lack of appetite for a cashless society, the study also reveals that opinion is split on whether it is even possible. The UK, the most ‘cashless’ country surveyed, represented the highest proportion (47%) of respondents that do not see an end to cash, closely followed by Australia (42%).

Travelex commissioned Sapio Research to survey 1,000 consumers regarding their attitudes to cash and cashless technology across four markets: the UK, Australia, Brazil and South Africa. These four countries are at different points in the “journey towards cashlessness”, as defined by Mastercard’s Measuring progress toward a cashless society report, and together give a representative overview.

(Source: Travelex)

Despite the hype, research by IDEX Biometrics has revealed that mobile payments are almost as unpopular as cheques. In fact, the payment card is still the number one payment method when it comes to in-store purchases for UK consumers. Three quarters (75%) of respondents stated that they use cards, including contactless, most often, compared to cash (21%), mobile payments (3%), and cheques (1%).

Unfortunately, there doesn’t seem to be a glimpse of hope for mobile payments on the horizon, with 72% stating they are concerned about the possibility of no longer having access to a physical debit card and needing to rely on mobile payments only.

It seems consumers’ personal attachment to the payment card is virtually unbreakable. Nearly two-thirds (65%) of respondents stated that carrying their debit cards provides a sense of security. It’s not surprising then that 75% say they always take a debit card with them when they leave the house. 65% of those questioned said that they wouldn’t give up their debit card in favour of mobile payments and a further 78% admit to feeling more secure using their debit card in comparison to mobile payments.

A further 60% also stated they would be worried people would have access to their accounts if they lost their mobile phone, amplifying the clear consumer distrust in mobile payments and their personal attachment to payment cards.

“It is evident that the UK public won’t be ditching payment cards in favour of mobile payments in the near, or even distant, future. Banks must face this and innovate with cards, which have stayed largely the same for decades,” comments Dave Orme, IDEX Biometrics SVP.

“With a resounding 53% of consumers stating they would trust the use of their fingerprint to authenticate payments more than the traditional PIN, this must be where the UK banking industry focuses its attention. Chip and PIN is now 12 years old, and has seen its course. It is time to elevate the traditional payment card and evolve authentication methods to make contactless transactions even more convenient and secure by adding seamless fingerprint biometric authentication”, added Orme.

(Source: IDEX Biometrics)

Figures released by UK Finance find the number of debit and credit card transactions grew by 12% in the UK in the year to the end of June, the highest annual rate since 2008. The value of spending also rose, accelerating to 7.2%.

Lenders are currently facing the pending challenge of upping their game after The Bank of England's Prudential Regulation Authority (PRA) highlighted the need to address lending concerns.

Ian Bradbury, Chief Technology Officer, Financial Services Business at Fujitsu UK and Ireland, told Finance Monthly:

“With the use of contactless payment cards soaring by over 140% in the past year alone, the news that UK credit and debit card spending is growing at its fastest rate in nine years comes as no surprise. We expect contactless payments to become an increasingly important feature in the British payments landscape. Making up around a third of all plastic card transactions – up from around 10% just a couple of years ago – the convenience and ease of contactless payment means that such transactions are continuing to gain traction with the public. Not only this, the high-growth adoption of contactless payments underlines the fact that consumers and retailers choose to adopt solutions that are secure, quick and easy to use, as well as ubiquitous.

Contactless payments are not only easier to use than Chip and Pin, they are in many ways more practical than small change and small notes. The significant parallel growth in debit card transactions also suggests that this is not growth just fuelled by debt and easy credit – much of this increase will be a result of contactless payments being made purely due to ease. What’s more, contactless payments have the added value of fuelling other payment solutions such as Apple and Google pay and other wearable technology – which can’t be done as easily with Chip and Pin.

Finally, the success of contactless payments demonstrates that consumers are quick to adopt new payments solutions that focus heavily on improving the consumer experience. However, because consumer experience can cover many aspects including convenience, security, speed and ubiquity, it’s vital that providers put in place ways to improve the experience over current solutions. If future payment solutions do not address all of these areas – which are fast-becoming a customer expectation – then they are unlikely to be successful.”