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Faster Payments Poised to Drive Faster Growth for Small Businesses

Small- to medium-sized businesses (SMBs) can suffer the most from big delays in getting paid.

With the news that the U.S. securities market will be converting to a T+1 standard settlement cycle Tuesday (May 28), faster payments are increasingly top of mind as well for Main Street SMBs looking for not just speed, but also improved cash flow efficiency.

As Gary Gensler, chair of the Securities and Exchange Commission said in a Tuesday (May 21) statement, “time is money, and time is risk” — and the same holds true for SMBs, which represent 99.9% of all American businesses and frequently find themselves waiting on payments as their other needs grow.

As the landscape of instant payments continues to evolve, the potential for SMB growth is immense. By navigating the challenges and using the opportunities presented by real-time transactions, SMBs can unlock new levels of working capital efficiency, drive greater customer satisfaction, and use future-fit competitive advantages, setting the stage for a more dynamic and prosperous business environment.

The move toward real-time transactions is not just an inevitable one but an essential one. As the FedNow® Service approaches its one-year mark, faster payments within the SMB space are poised to enhance both the quality and speed of commerce — ultimately improving the overall cash flow for a portion of the economy.

But it isn’t just businesses that are driving the real-time revolution. Behind the scenes, it is up to banks and financial institutions to facilitate these transactions in seconds and provide immediate access to funds, 24/7.

Read also: Payment Innovations Help Small Businesses Navigate the Main Street Maze

Instant Payments Bring Real-Time Clarity to SMB Operations

The historical reality for SMBs is that they have been underserved by financial institutions, which don’t quite know where or how to place them, resulting in fragmented solutions that provide small businesses with incomplete views of their finances, cash flows and payments.

The situation leaves many SMBs struggling with operational inefficiencies and has resulted in an increasing demand for safe and convenient payment methods that provide greater visibility.

Instant payments will “improve the quality and speed of commerce and the overall cash flow of one half of our economy” as smaller firms benefit, Enigma Technologies Co-founder and CEO Hicham Oudghiri told PYMNTS in December.

As PYMNTS Intelligence found, the smaller the business, the greater its uncertainty around payments tends to be. Faster payments bring with them more certainty than traditional, delay-filled payment methods tend to.

Separate findings included in the PYMNTS Intelligence study “How Instant Ad Hoc Payment Costs Impact Small SMBs” revealed that SMBs are increasingly turning to instant payments as a way to ensure certainty and visibility over and around their operations.

More than 8 in 10 SMBs said they now receive instant ad hoc payments in exchange for the goods and services they provide. In appreciation for this speed and convenience, 57% of SMB receivers said they’re even willing to pay a fixed fee for instant payments.

See also: Instant B2B Payments Reshape Buyer-Supplier Dynamics

Challenges and Opportunities Driving SMB Growth

Still, the smallest SMBs — those annually generating less than $100,000 in revenue — have decreased instant payment use since September. This is most likely due to cost. Small SMBs that use instant methods report that they pay the highest fees.

But that cost may ultimately pale in comparison to the ongoing costs embedded within legacy payment mechanisms that are replete with delays, fraud and uncertainty.

“There’s a huge opportunity for small businesses and mid-size businesses, and even large businesses, to continue to embrace moving away from checks and adopting other payment methods,” Jill Capicchioni, product director of payments at NCR Voyix, told PYMNTS in February.

And as Ingo Payments CEO Drew Edwards explained to PYMNTS in a conversation published this week: “This is just the way it ought to be. There needs to be choice — fast choices, safe choices and simple choices. And this creates momentum for instant payments because who doesn’t want their money faster? It’s the future.”

Research showed that the use of ad hoc payments by large enterprises to pay SMBs and individuals is on the rise — and exclusive data from PYMNTS Intelligence suggested lower costs and easier integration could be making them even more popular.

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