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Deep Dive: Fixing Corporate America's Everyday Spending Problem

American businesses have a multitiered spending problem.

Many reimburse their staff members for company purchases after they are made, meaning they have little or no insight into how much money those workers spend until transactions have been finalized. This uncertainty ultimately makes it difficult for financial professionals to manage their budgets and cash flows.

The ongoing pandemic is compounding these spending oversight issues. Businesses are not only working with budgetary blind spots but are also struggling to pay their bills during the economic slowdown. Sales are falling as consumers curb their spending, resulting in cash flow crunches that are pressuring businesses to stick to their budgets and pursue innovations.

This month’s Deep Dive explores the numerous ways in which pandemic-driven financial strains are prompting businesses to invest in digital spend management tools, the solutions they are investing in and the extent to which such offerings can alleviate businesses’ spending pain points.

Managing Cash Flows During the Crunch

The pandemic is affecting consumers in myriad ways. The virus’s spread has triggered a healthcare crisis and led to record unemployment levels, with pay cuts shaking individuals’ financial stability and making them wary of spending. U.S. consumers’ collective expenditures decreased by $2.7 billion between January and April, for example.

This precipitous drop in consumer spending has likewise affected businesses’ financial footing, with 21 private and public retailers — including Brooks Brothers, Heritage Brands and Muji — filing for Chapter 11 bankruptcy through July. Small- to medium-sized businesses (SMBs) have been hit especially hard by sales losses. Twenty-four percent of all U.S. SMBs have temporarily closed since the pandemic began, and those that are still operating are struggling to stay afloat.

PYMNTS’ research shows that 76 percent of U.S. SMBs with brick-and-mortar locations had experienced cash flow shortfalls as of mid-June since the pandemic began, and 37 percent of SMB owners had to tap into their personal funds to remain solvent.

Businesses suffering cash flow shortages tend to pass these financial difficulties on to their workers, suppliers and partners, which can compound spending-related issues. The same PYMNTS research shows that 19.9 percent of SMBs with brick-and-mortar presences have delayed payroll payments to alleviate the strain on their finances, while 18.1 percent have stalled supplier payments. This means that individuals must often wait to receive paychecks, while suppliers are left to manage cash flow shortages of their own.

Smoothing Internal Frictions

Pandemic-related cash flow crunches extend far beyond firms’ relationships with their business partners; the drive to cut costs is also pressuring their internal operations. Businesses with less incoming revenue have reduced wiggle room when managing their budgets, which has resulted in a dramatic uptick in the demand for digital tools that can help accounting and financial departments monitor transactions and rein in excess spending. Three-quarters of business owners said spend management has been more important during the pandemic than it had been in the past five years.

Countless digital spend management solutions have entered the market to meet this growing demand. Some have taken the form of subscription offerings, which give businesses greater transactional visibility by allowing them to view their staff members’ past, current and planned expenditures in real time. The use of virtual cards that enable companies to set spending limits is also expanding, with the number of such transactions expected to increase 11 percent by the end of the year.

Digital spend management tools such as these can help businesses keep track of their limited financial resources as well as solve some of the logistical difficulties stemming from legacy payment methods, especially as more individuals work remotely. These workers can send forms, files and payments via emails, digital messages and virtual cards much faster than what is possible with paper-based methods.

The unprecedented circumstances of the pandemic are presenting challenges as well as opportunities for businesses. Those working to manage their spending, minimize costs and improve their operational efficiencies amid widespread cash flow shortages could find that digital tools give them the insights and fast payments they need to weather the economic storm.

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NEW PYMNTS STUDY: ACCELERATING THE REAL-TIME PAYMENTS DEMAND CURVE – NOVEMBER 2020

About: Accelerating The Real-Time Payments Demand Curve:What Banks Need To Know About What Consumers Want And Need, PYMNTS  examines consumers’ understanding of real-time payments and the methods they use for different types of payments. The report explores consumers’ interest in real-time payments and their willingness to switch to financial institutions that offer such capabilities.

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